Abstract
In this article, the global simulation model (GSIM) of Joseph F. Francois and Keith H. Hall (2009) for analyzing global, regional, and unilateral trade policy changes was applied to Serbia. This was to measure the effects of full trade liberalization with the EU after Serbian accession to the EU. As anticipated, most of the changes in welfare after full liberalization of trade between Serbia and EU can be expected in sectors where Serbia has specialized; protection against imports from the EU is strong. However, losses could also occur in sectors that currently face strong protection against the rest of the world and this protection is lost after EU accession. Trade liberalization will lead to a substantial loss of tariff revenues. Reduced consumer prices might, on the one hand increase consumer surplus but on the other hand decrease producer surplus and output in certain industries.
Highlights
For Serbia, it was assumed that the elasticity of substitution is at 7.5, indicating that citizens of Serbia prefer to a lesser extent local products to foreign compared with the European Union (EU) and the rest of world (ROW)
According to the model assumptions, we can expect that the overall net welfare effects of liberalization should be substantially negative notably because of the strong losses in tariff revenues and producer surplus, which cannot be fully outweighed by the consumer surplus in the wake of falling prices
All the results of this exercise have to be seen with caution, because they are generated with the help of a partial equilibrium model instead of a general equilibrium model
Summary
According to the economic use, Serbian exports consist mainly of raw materials and intermediate goods. According to the divisions of the Standard International Trade Classification (SITC), the following items had the greatest export shares in 2005: iron and steel (USD 619 million), nonferrous metals (USD 360 million), vegetables and fruit (USD 262 million), and clothes (USD 244 million). These four sections accounted for 33.1% of the overall exports. Thanks to the ATM, since 2004, Serbian agriculture has marked a positive trade balance with the EU. Full liberalization will lead to adaptation costs in the agricultural sector in the short and medium term
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