Algeria’s Trade with GAFTA Countries: A Synthetic Control Approach

Abstract

Arab countries signed the Greater Arab Free Trade Area (GAFTA) agreement in 1998, while Algeria only joined in 2005. In this study, I investigate the counterfactual trade that Algeria would have had with its GAFTA trade partners had it joined the agreement in 1998. I employ synthetic control methods (SCM) in the context of the gravity approach to international trade to estimate this counterfactual outcome. The SCM creates the synthetic control unit based on a weighted average of the past characteristics and trade realizations of the countries that signed the GAFTA agreement and compares the counterfactual trade outcome against the actual outcome of the treated unit, Algeria in our case. Estimation results indicate that Algeria’s trade with nine GAFTA countries, covering more than 96 % of Algeria’s pre-treatment trade, would have improved if Algeria had signed the agreement in 1998.