The impact of the euro-Mediterranean free trade area on Malta's exports of manufactured products

Abstract

The Maltese economy shares vulnerabilities associated with small states in particular a lack of resources and a small domestic market size. Its smallness precludes it from achieving economies of scale and from effective diversification . Furthermore, being an island, Malta experiences economic isolation where the transport costs to superimpose this are relatively high. Thus its microeconomy limits scope and scale of activities including R&D as well as investment opportunities. These vulnerabilities have made Malta structurally open to trade which intensifies an exposure to exogenous shocks in both its imports and export markets because of its position as a price taker in world markets. This dissertation is divided into five chapters: Chapter One sketches a brief history of the Mediterranean relations with Europe. It refers to the European economic integration, with special reference to the Mediterranean region until the Barcelona Declaration came to force in 1995 with the objective of a free trade area. This latter initiative is described within its main fields after which a description of the new Euro- Mediterranean agreements is given. Chapter Two is entirely devoted to the theoretical treatment of Free Trade Areas. Initially a brief introduction is given with regards to the theory of economic integration after which both the static and dynamic effects of free trade areas are tackled. Chapter Three is about the manufacturing sector in Malta and the barriers faced when Maltese manufacturers try to export their products within this region. An analysis of how the exports of manufactured goods can be affected after the establishment of the Free Trade Area is then also undertaken.

Chapter Four defines an export model for the Euro-Mediterranean area identifying the impetus towards Malta's exports of manufactured goods. Chapter Five gives a brief description of the impact of the Euro-Mediterranean Free Trade Area on Malta's exports of Manufactured Products as well as some policy recommendations.