Cameroon stands to gain economically from the new regional trade agreement among countries of the Central African Economic and Monetary Community. Better access to partner markets and reduction of the external tariff explain virtually all of Cameroon's welfare gain.
Bakoup and Tarr quantify the impact on Cameroon of three aspects of its new regional trade agreement with the Central African Economic and Monetary Community (the CEMAC agreement):
They estimate that Cameroon will gain from the agreement but show how Cameroon's regional market power greatly affects the magnitude of its gains. They assume that Cameroon has regional market power in both imports and exports despite being small in world markets.
They find that better access to partner markets and reduction of the external tariff explain virtually all of Cameroon's welfare gain.
In their preferred scenario (Cameroon having regional market power), reduction of the external tariff explains three-quarters of the welfare gain.
If Cameroon further reduces tariffs to its regional partners, the effect on its economy is a loss of real income but the impact is negligible.
Should Cameroom's partners fail to provide tariff-free access to their markets, Bakoup and Tarr estimate that, given Cameroon's regional market power, Cameroon would gain even more from free trade than it would from implementing the CEMAC arrangements.
This paper—a product of the Development Research Group—is part of a larger effort in the group to investigate the implications of regional trade arrangements. Copies of the paper are available free from the World Bank, 1818 H Street NW, Washington, DC 20433. Please contact Lili Tabada, room MC3-333, telephone 202-473-6896, fax 202-522-1159, Internet address ltabada@worldbank.org. (45 pages)
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