Trade Creation and Trade Diversion between Tunisia and EU: Analysis by Gravity Model

Abstract

Since the middle of nineties, there has been a great rise of free trade agreements (FTA) between the North and South countries. Indeed, the objective of this article is to know if FTAs between an industrialized region as Europe and a small country as Tunisia are capable of increasing exchanges among them and then improving the trade of the weakest country. The authors' aim is to know if agreements between industrial countries and developed countries are able to increase trade between. To answer to this question, the authors evaluate the two effects of regional integration: trade creation and diversion. Two main results were obtained: the first result is that after five years of the agreement between Tunisia and Europe, there has been no trade creation. The second result shows that a preferential agreement between the two partners does not generate a trade diversion of imports. However, there is a trade diversion of exports.