ESTIMATING THE

ECONOMIC BENEFITS
of
Levant
Integration

Daniel Egel
Andrew Parasiliti
Charles P. Ries
Dori Walker

C O R P O R AT I O N
Acknowledgments
We thank the New Levant Initiative for its support of this project; Keith Crane,
Justin Lee, and Howard Shatz for their excellent feedback on earlier versions of this
report and on the online calculator; Brian Phillips for his assistance in painstak-
ingly reviewing the calculator; and Arwen Bicknell for her editing of this report.
Andrew Parasiliti was director of the RAND Center for Global Risk and Security
when he coauthored this study.

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ii
Preface

T
his report examines the potential effects of economic inte-
gration on the economies of the Levant. The potential gains
from a comprehensive regional free trade agreement are sub-
stantial and could help the Levant address the daunting twin
challenges of reconstructing Syria and creating employment oppor-
tunities for the large number of youth entering the labor market over
the next decade. Although maximum benefits assume some degree
of stabilization of the Syrian and, eventually, Israeli-Palestinian con-
flicts, the potential gains from even partial integration (such as the
recently penned Iraq-Jordan economic agreements) could be the start
of a potential takeoff for the region.

Accompanying this report is an online tool—available at www.rand.

org/levant-calculator—that allows policymakers and the public to
examine the economic dividend from economic integration.

This research was sponsored by the New Levant Initiative and

conducted within the International Security and Defense Policy
Center of the RAND National Security Research Division (NSRD).
NSRD conducts research and analysis for the Office of the Secretary
of Defense, the Joint Staff, the Unified Combatant Commands,
the defense agencies, the Navy, the Marine Corps, the U.S. Coast
Guard, the U.S. Intelligence Community, allied foreign govern-
ments, and foundations.

For more information on the RAND International Security and

Defense Policy Center, see www.rand.org/nsrd/ndri/centers/isdp or
contact the director (contact information is provided on the webpage).

iii
Contents
vii | Summary
1 | Chapter 1. Introduction
7 | Chapter 2. Regional Integration:
Precedent and Momentum
13 | Chapter 3. Estimating the Benefits from
Integration
28 | Chapter 4. An Israeli-Palestinian Dividend?
31 | Chapter 5. Realizing the Promise
35 | References

Figures
ix | Figure S.1. Estimated Aggregate Effects of Levant Integration
14 | Figure 3.1. Summary of Trade Impact
19 | Figure 3.2. Trade-Related Effects of Levant Economic
Integration
23 | Figure 3.3. Investment-Related Effects of Levant
Economic Integration
27 | Figure 3.4. Tourism- and Travel-Related Effects of
Levant Economic Integration
33 | Figure 5.1. Online Tool for Assessing the Economic
Value of Levant Economic Integration

v
Summary

E
conomic integration in the Levant—in the form of a com-
prehensive free trade agreement (FTA) that eliminates tariffs,
lowers investment and nontariff barriers, and waives visa
requirements—could increase the average gross domestic
product (GDP) of the Levant nations by 3–7 percent. This economic
expansion would likely create at least 0.7 million to 1.6 million
additional new jobs, reducing regional unemployment rates by
9–20 percent—and total job creation might be substantially larger.
These estimates are for a potential FTA among Egypt, Iraq, Jordan,
Lebanon, Syria, and Turkey—six of the core Levant countries.

Our analysis focuses on the three primary mechanisms—trade, invest-

ment, and tourism and travel—through which such a comprehensive
FTA is likely to affect these economies. Previous empirical research
has demonstrated that reducing tariffs and nontariff barriers enables
trade; lowering investment barriers increases domestic and foreign
investment; and eliminating visa requirements expands tourism and
travel. This existing literature has also established that expanded trade,
investment, and tourism and travel each increase GDP.

Figure S.1 reports our estimates of how a comprehensive FTA

would change GDP and unemployment for each of these six coun-
tries. These estimates are derived from the results in the existing
literature, with the figure reporting the net benefits that would
accrue through increased trade, investment, and tourism and travel.
We report the percentage change in GDP that would result from
these increases, and we illustrate the change in unemployment by
comparing the current unemployment rate (the “baseline” in the
figure) with the estimated unemployment rate resulting from the

vii
FTA. The “cautious” estimates model the benefits of integration as a
series of bilateral FTAs while the “optimistic” estimates also factor
in the likely benefits from regional coordination—specifically,
improved trade coordination, increased political stability, and
coordinated promotion of tourism and travel. The overall benefit
from integration could be even larger if integration is accompanied
by broad domestic reforms and regional coordination in improving
shared infrastructure.

Although achieving these projected benefits will require some degree

of stabilization of the Syrian conflict and significant coordination
among sometimes troubled neighbors, there is now momentum to
indicate that such a project could be successful. In 2011, four of
these countries—Jordan, Lebanon, Syria, and Turkey—nearly estab-
lished a customs union patterned after the European Union that
would have allowed the free movement of goods and people. Though
the political turmoil in the region has prevented further progress, the
recent Iraq-Jordan economic agreements—signed in early February
2019—and trilateral Egypt-Iraq-Jordan summit the following month
could provide the first steps toward achieving the benefits of Levant
economic integration.

We have developed an online tool—available at www.rand.org/

levant-calculator—that allows policymakers and the public to
examine the economic dividend from economic integration. It allows
users to (1) vary key assumptions about the movement of goods, peo-
ple, and capital and (2) explore different combinations of countries
participating in the FTA—even allowing the inclusion of Israel and
the West Bank and Gaza. The benefits increase for larger blocs of
countries and with reduced restrictions on the movement of goods,
people, and capital among these countries. But we recognize that
regional integration might start with only a subset of countries and
with only partial economic integration: This tool also allows exam-
ination of the benefits of these alternative arrangements.

The online calculator is available at

www.rand.org/levant-calculator.

viii
FIGURE S.1

ESTIMATED AGGREGATE EFFECTS OF

Levant Integration
The unemployment rate could decrease by
over 2 percentage points
Change in unemployment rate over 10 years

Baseline Cautious scenario Optimistic scenario

16%

14%

12%

10%

8%

6%

4%

2%

0%
EGYPT IRAQ JORDAN LEBANON SYRIA TURKEY

Baseline unemployment rates are for 2018 (the most recent data available at
time of publication).

A comprehensive trade agreement could increase GDP by

up to 7 percent
Percent change in GDP after 10 years

Cautious scenario Optimistic scenario

EGYPT

IRAQ

JORDAN

LEBANON

SYRIA

TURKEY

0% 2% 4% 6% 8% 10% 12% 14%

ix
x
1

Introduction

S
ince the late 1990s, there has been a persistent, though spo-
radic, effort to deepen economic partnerships in the Eastern
Mediterranean,1 a region often referred to as the Levant. Six
core countries of the Levant—Egypt, Iraq, Jordan, Lebanon,
Syria, and Turkey2—have established a variety of bilateral economic
ties, but attempts to establish broader regional economic partner-
ships have faltered.3 However, these efforts—particularly the near
success of four Levant countries (Jordan, Lebanon, Syria, and Tur-
key) in signing a regional agreement just before the onset of the Arab
Spring—might provide a foundation for integration in this region.

This report examines the potential benefits of economic integra-

tion among these six core countries of the Levant. Our analysis
focuses on a comprehensive free trade agreement (FTA) that would
eliminate all tariffs, lower investment barriers, align regulations to
gradually reduce nontariff barriers (e.g., rules of origin),4 and waive
visa requirements. We assume that this integration would establish
a single economic zone across all signatories; significantly reduce
1
In the 1990s, proponents of economic integration concluded that “[i]ncreased commerce and
investment will diminish the mistrust that has long divided governments” (Albright, 1997),
and that a shift “from a strategy of military superiority to one of economic cooperation” was
needed (Peres, 1993, p. 74).
2
Although both Israel and Palestine are part of the core of the Levant, we exclude them from
our definition because political obstacles currently block their participation in a trade agree-
ment. Note that this is a modestly expanded definition of the Levant compared with historical
definitions that typically exclude most of Iraq and Turkey. For a discussion, see Mansel, 2010,
and Harris, 2005.
3
Turkey established FTAs with Syria in 2004, Egypt in 2005, Jordan in 2007, and Lebanon
in 2010. Turkey also co-led a failed effort (with Syria) in 2010 to establish a free trade zone
encompassing Iraq, Jordan, Lebanon, Syria, and Turkey that would, if successful, eventually
evolve into a “Middle Eastern Union” (Walker, 2011).
4
Nontariff barriers are the “most important [barrier] to trade” in this region, and include rules
of origin, standards and conformity assessment requirements, delays induced by inspection and
other processes, and frequency of problems with customs and other authorities (Hoekman and
Zarrouk, 2009; and Rouis and Tabor, 2012, p. 19).

1
existing restrictions on the movement of goods, people, capital, and
services; and replicate the successes of regional FTAs elsewhere in
the world rather than the historical efforts in the Middle East (e.g.,
the Pan-Arab Free Trade Agreement), which have been less success-
ful than others throughout the world.5

Our analytical approach examines the three primary mechanisms—

trade, investment, and tourism and travel—through which a com-
prehensive FTA such as the one we discuss is likely to benefit these
economies. It is well-established that reducing tariffs and nontar-
iff barriers enables trade;6 lowering investment barriers increases
domestic and foreign investment;7 and eliminating visa requirements
expands tourism and travel.8 We draw on this existing literature in
estimating the benefits of a comprehensive Levant FTA. For exam-
ple, our estimates for the trade mechanism are based on an analysis
of all FTAs signed between 1970 and 2000, and that analysis con-
cluded that FTAs roughly double bilateral trade.9

The analysis is focused on determining how the comprehensive

FTA would affect each country’s overall economy, as measured by
gross domestic product (GDP), via each of these three mechanisms.
Although we rely on the existing academic literature to estimate the
GDP equivalency of changes in trade and investment,10 we estimate

5
FTAs worldwide have been estimated to increase bilateral trade among signatories by 100 per-
cent, on average (Baier and Bergstrand, 2007). In contrast, the Pan-Arab Free Trade Agreement
increased intraregional trade by only 20 percent (Harb and Shady, 2016).
6
Reducing these barriers makes it cheaper for countries to trade, thus making it profitable for
a greater number of firms to export. This expanded trade reduces the cost of goods and services
available to consumers in both countries because the more-efficient producers of a good now
determine the market price. This trade is typically disruptive, as we describe later, because new
imports resulting from an FTA compete against either domestic firms or imports from other
trading partners. For a review of how tariff and nontariff barriers affect trade, see Hoekman and
Nicita, 2008.
7
The primary relevant barrier to foreign investment is uncertainty about whether and how
investments will be protected. Investment treaties typically “provide clear, enforceable rules to
protect foreign investment and reduce the risk faced by investors,” providing foreign investors
“either parity with or advantages over domestic investors” (Tobin and Rose-Ackerman, 2005,
pp. 2, 5).
8
Simply put, visa restrictions of any kind decrease the total quantity of tourists and other
visitors (Lawson and Roychoudhury, 2016).
9
Baier and Bergstrand, 2007.
10
Our estimates of the GDP impacts of expanded trade are based on Frankel and Romer
(1999), though there is broad census that trade increases GDP. (For a review, see Ortiz-
Ospina, 2018.) We estimate the GDP impacts of expanded investment using a standardized
Cobb-Douglas function, which approximates how GDP responds to changes in physical and
human capital. Mitra et al., 2015, use an analogous approach.

2
the GDP effects of expanded tourism and travel directly. Although
we recognize that FTAs typically do not benefit all industries
equally—in many cases, at least one industry is harmed—we do not
assess the potential winners and losers from such an agreement.11 We
similarly do not try to estimate the effect of this FTA on inequality
within each of the six countries because there is not clear agreement
on this effect in the literature.12 Although we do not examine either
of these potentially disruptive effects in detail, developing plans to
compensate for them is imperative to the FTA’s viability.13

In addition to studying the FTA’s potential aggregate economic

consequences, we also estimate its effect on job creation. For this
analysis, we rely on existing estimates of the relationship between
changes in GDP and employment,14 with our analysis of job creation
therefore a derivative of our estimates of the FTA’s effects on GDP.
We rely on cautious estimates of the employment effects of growth
throughout this report.15

We focus our analysis on an economic bloc that involves Egypt, Iraq,

Jordan, Lebanon, Syria, and Turkey. We recognize that the success
of an FTA involving these six economies will be affected by prog-
ress toward stabilization in Syria and that an eventual Levant-wide
comprehensive FTA might begin via a series of bilateral economic

For an accessible discussion of the idea of “winners and losers” from international trade, see
11

Wolla and Esenther, 2017.

12
There is a general consensus that international trade contributes to increased inequality
within countries (for a discussion, see Pavcnik, 2017), though a recent FTA-focused study
concluded that goods-related FTAs might reduce this within-country inequality (Lee and Kim,
2016).
13
These types of disruptive effects contributed to the failure of at least one comparable regional
trade agreement (the East African Customs Union) and difficulties in a multitude of others. For
a discussion, see Dreyer and Popescu, 2014.
14
Our estimates of total job creation are less certain than our estimates of changes in GDP
because the former rely on an additional assumption about the elasticity of changes in output
to changes in employment. This “employment-growth elasticity” depends on “amount of sur-
plus labor and labor force growth rate, the unemployment and labor force participation rates,
the level and growth rate of labor productivity, and the structure of production” (World Bank,
2011, p. 35). Our analysis relies on country-specific estimates as described in Chapter 3.
15
For example, there is a wide variation in existing estimates of the employment-growth elastic-
ity in Lebanon, from 0.20 (Robalino and Sayed, 2012) to 0.45 (World Bank, 2011, p. 56) to
even as high as 0.80 (Slimane, 2015, p. 688), with the lowest (0.20) and highest values (0.80)
suggesting a four-fold difference in the employment effects of growth. In our analysis, we rely
on the most cautious estimate of this elasticity that we were able to identify in the existing
literature, although the online calculator allows users to vary this assumption.

3
agreements16 —such as the one signed between Iraq and Jordan in
February 2019.17 (In addition, given that Turkey is currently in an
industrial products Customs Union with the European Union [EU],
any FTA that includes Turkey and either Iraq or Syria would require
an equivalent FTA between the EU and Iraq and Syria or some other
accommodations by the EU.) Furthermore, it is possible that Israel,
as well as the West Bank and Gaza (which we refer to as Palestine
in this report),18 might someday be included in an eventual regional
agreement if the Israeli-Palestinian conflict can be resolved.

Chapter 2 describes the efforts of nearly a decade ago to establish

the Shamgen Agreement (a Levant-wide FTA) and recent efforts
to deepen economic partnerships within the region. Chapter 3
describes our analytical approach and provides the primary results
for the six countries of the Levant, and Chapter 4 examines the
potential value to Israel and Palestine from an FTA that includes
those two economies. The final chapter summarizes the challenges
to regional integration, describes approaches that these states and the
international community might take to help support these nascent
efforts, and introduces our online tool that allows policymakers and
the public to examine the economic dividend from economic inte-
gration in the Levant.

16
Our analysis does not try to estimate the economic effects of Syrian reconstruction nor the
broader “peace dividend” of potential improved relationships between Israel and Palestine. For
Syria, our analysis assumes that reconstruction efforts—independent of the economic inte-
gration process—return Syria to its preconflict level of GDP at the end of a decade. For Israel
and Palestine, we do not factor in the broader dividends from a solution to the Israel-Palestine
conflict other than those directly attributable to economic integration—i.e., we do not consider
the trade benefits offered in the Arab Peace Initiative, larger reductions in domestic instability
from resolution of the conflict, and other additional elements discussed in depth in Anthony
et al., 2015.
17
“Jordan, Iraq Agree on Oil Supply as Trade Accords Go into Effect,” 2019.
18
To avoid ambiguity, we use the term Palestine to refer to the area of the West Bank and the
Gaza Strip, as defined by the 1949 Armistice Line, and the term Palestinians to refer to the
inhabitants (except for the Israeli settlers) of the West Bank and Gaza; Arabs residing in Israel
are included in our analysis of the Israeli economy. We are not making any assumptions about
the future internal political arrangements in Palestine, and thus will not make reference to any
political entities in this territory (e.g., the Palestinian Authority created as part of the Oslo
Accords). This approach follows that used by Anthony et al., 2015, p. xxii.

4
We focus our
analysis on
an economic
bloc that
involves Egypt,
Iraq, Jordan,
Lebanon, Syria,
and Turkey.

5
6
2

Regional
Integration:
Precedent and
Momentum

I
n 2010, four countries of the Levant—Jordan, Lebanon, Syria,
and Turkey, which have been called the “Levant Quartet”—began
a historic process to deepen the integration of their four nations.
Together, they established the Close Neighbors Economic and
Trade Association Council and began a process that would result in
the free movement of goods, capital, and people among these four
economies. This plan was referred to as the Shamgen Agreement
(Shamgen) because it was intended to eventually be a Levant-wide
project (Sham-) patterned after the European Union’s Schengen
agreement (-gen).1

The seeds of Shamgen date to 2003, when Syria and Turkey began
discussing the possibility of an FTA.2 The motivations were both
economic and political. Syria was looking for a regional partner-
1
See, for example, Bülbül and Çeviker, 2012. Note that the Schengen agreement was focused
on only the movement of people among European signatories while Shamgen encompassed the
movement of goods, people, and capital.
2
The first “economic missions” started in 1999, in the wake of the Adana accords, and the
countries established a Joint Economic Commission “that facilitated trade agreements and
sponsored events” (Phillips, 2011, p. 37). Economic initiatives reportedly started to proliferate
during 2002, even though “[o]nly after Damascus agreed to sever all connections with the
PKK [Kurdistan Workers’ Party] was a variety of measures adopted to encourage commercial
expansion, including a transportation agreement designed to boost rail, sea and air links and a
memorandum of understanding that reinvigorated the long-dormant Joint Economic Commit-
tee” (Lawson, 2010).

7
ship that would facilitate mod-
ernization, provide a counter to
In 2010, four Muslim Brotherhood influence,
countries of the and supplement and balance its
Levant—Jordan, alliance with Iran. For Turkey,
Syria emerged as a key ally in its
Lebanon, Syria, efforts to counter the threat posed
and Turkey— by Kurdish nationalists in the
began a historic wake of the U.S. invasion of Iraq.3
The Syrian-Turkish FTA, signed in
process to
2007 and modeled after an agree-
deepen the ment that Syria had been negotiat-
integration ing earlier with the EU,4 began to
of their four have an effect almost immediately,
with Turkish companies invest-
nations.
ing in Syria to take advantage of
cheaper energy and labor and a
sharp increase in bilateral trade. And in 2009, Syria and Turkey
5

agreed to visa-free movement of their people.6

The deliberate process to expand this economic partnership to

include Jordan and Lebanon—and hence establish Shamgen—
started in 2007. The motivation for this expansion was again both
economic and political. From an economic perspective, these
expanded partnerships reflected a “Turkish need for economic
expansion” while its partners were looking for opportunities to
address domestic socioeconomic challenges.7 Politically, this partner-
ship would allow Turkey to solidify its role as a regional mediator,
Jordan to deepen its ties with its neighbors, and Lebanon and Syria
to normalize relationships with their partners. Both the Jordanians
and Lebanese proved eager to join, and the Shamgen project was
launched in 2007 at a meeting hosted by Italian Prime Minister Sil-

3
Phillips, 2011, p. 36.
4
In 2003, Syria and the EU were negotiating an FTA that ultimately collapsed. The exact same
text was used for the Syrian-Turkish FTA, which reportedly created some problems because
Turkey and Europe are very different.
5
Annual growth in bilateral trade was in excess of 30 percent for the 2007–2011 period, com-
pared with approximately 10 percent for preceding years (authors’ analysis based on Interna-
tional Monetary Fund 2018).
6
Phillips, 2011, p. 36.
7
Albarracin, 2011, p. 238.

8
vio Berlusconi in Milan. At this meeting, the partners established a
series of ministerial committees that would begin the process toward
establishing Shamgen.

In July 2010, the Levant Quartet established the Close Neighbors

Economic and Trade Association Council with the “free movement
of capital, goods and people” as a “medium-term objective,” along
with a High-Level Strategic Cooperation Council to oversee the
project.8 In the meantime, the four partners established a series of
limited agreements: Turkey established bilateral FTAs with Jordan
(in 2009) and Lebanon (in 2010); Turkey, Syria, and Jordan estab-
lished a visa-exemption agreement in 2009; and Turkey and Leba-
non established a visa-exemption agreement in 2010.9 These bilateral
arrangements would prove a key mechanism in the 2010 agreement,
which would gradually expand “all existing bilateral agreements to
cover the four countries.”10 In addition, by late 2010, economic ties
between Iraq and Turkey had been largely restored, with both the

8
Albarracin, 2011, p. 238.
9
Yilmaz, 2011.
10
“Lebanon and Turkey Sign Free Trade Agreement,” 2010.
Iraqi and Turkish governments taking action to sustain and deepen
economic ties.11

Shamgen faltered in 2011 with the onset of the Arab uprisings and
ultimately collapsed because of the civil unrest in Syria and the
resulting sanctions imposed by the international community.12 How-
ever, it was a project with aspirations beyond just the Levant, and its
leadership had imagined expanding to include Iran and Iraq. Some
had even mentioned Israel and Palestine—and though that aspi-
ration was perhaps “more emotional than practical,”13 both Jordan
and Turkey had trade relationships with Israel that might have been
leveraged for this expansion.

As the war in Syria seemed be winding down, regional integration

got a fresh boost from a major trade deal between two of the former
Shamgen countries. On February 2, 2019, Iraq and Jordan signed
a series of economic agreements designed to expand trade. These
agreements—which provide Jordan access to cheap oil, provide
Iraq access to electricity, and facilitate joint ventures (e.g., the joint
industrial city, the Basra-Aqaba pipeline)—are intended to restore
11
Turunc, 2011, p. 42.
12
Kurtaran, 2011.
13
Author conversation with participant in Shamgen negotiations.

10
economic ties between the
two countries.14 This part- A tripartite Egypt-Iraq-Jordan
nership reflects the simple summit in Cairo in March
reality that both nations are
2019 laid a foundation for
actively seeking agreements
that “create jobs, spur eco-
new economic and security
nomic growth and improve cooperation, both bilateral
public services.” But like the
15
and trilateral. This plus recent
partnership between Syria outreach by Lebanon and
and Turkey that was the
Turkey suggest that there is
foundation of Shamgen, this
one also reflected a political
again growing momentum for
calculus by the two nations; a regional economic project.
for example, King Abdul-
lah’s historic visit to Iraq in January 2019 focused on domestic and
regional political and security matters as much as it did economic
ones.16

This new partnership between Iraq and Jordan could also prove to
be the nucleus of broader economic integration. A tripartite Egypt-
Iraq-Jordan summit in Cairo in March 2019—the first international
trip by Iraqi Prime Minister Adel Abdul Mahdi in his role as prime
minister—laid a foundation for new economic and security cooper-
ation, both bilateral and trilateral.17 Furthermore, recent outreach by
both Lebanon and Turkey—for example, a visit by President Michel
Aoun to Iraq that similarly focused on economic and security
issues,18 or promises of investment and expanded trade by the Turk-
ish Foreign Minister19 —suggest that there is again growing momen-
tum for a regional economic project, this time centered around the
reconstruction of Iraq (and, potentially, Syria).

14
“Jordan, Iraq Agree on Oil Supply as Trade Accords Go into Effect,” 2019.
15
“As the Threat of ISIS Recedes, Iraq Looks to Its Neighbors to Spur a Recovery,” 2019.
16
“King’s Historic Visit to Baghdad Signals ‘New Phase’ in Jordanian-Iraqi Relations,” 2019.
For example, one observer indicated that the agreement would “allow Iraq to access Jordanian
military know-how in building its own military capacities” (“As the Threat of ISIS Recedes,
Iraq Looks to Its Neighbors to Spur a Recovery,” 2019).
17
“Iraq, Egypt, Jordan’s Joint Statement of Cairo Summit,” 2019.
18
Al-Salhy, 2018.
19
“Ankara Offers $5bn Credit for Turkish Companies Rebuilding Iraq,” 2019.

11
12
3

Estimating the
Benefits from
Integration

O
ur approach for estimating the benefits from integration
focuses on the opportunity costs—the missed economic
benefits—resulting from the lack of economic integration
in the region. Political conflicts and crises, and the resulting
uncertainty, have restricted international trade, investment, and the
movement of people. The estimated benefits of a comprehensive FTA
result from a reduction in these restrictions.

Our analysis focuses on the following three mechanisms:

1. Trade in goods and services: A comprehensive FTA

would increase trade by removing tariffs and reducing
other nontariff restrictions on trade (e.g., rules of origin, preship-
ment inspections).

2. Domestic and foreign investment: Local and interna-

tional investors and businesses will seek to take advantage
of the larger market for goods. Improvements in domestic and
regional political stability will also enable new investment.

3. Increased tourism and travel: The elimination of visa

restrictions would increase travel throughout the Levant
and create new opportunities for collaboration in tourism.

13
FIGURE 3.1

Summary of Trade Impact

BY MECHANISM
Percentage change in GDP

Trade Investment Tourism

12%
1%
10%
10% 2%

3%
4% 7%
1%
2%
5% 1%
5%
2% 9%
2%
6%
1% 5% 5%
2%
2%
1%
EGYPT TURKEY LEBANON JORDAN SYRIA IRAQ

NOTE: This figure reports our “optimistic” estimates as described in the text.

Figure 3.1 provides an overall summary of how economic integra-

tion would benefit the nations of the Levant via these three mech-
anisms. For each mechanism, our estimates are based on previous
assessments of the consequences of trade agreements in the Levant or
in other analogous contexts. For example, our estimates for the trade
mechanism are based on an academic study that measures the trade
impact of all FTAs signed between 1970 and 2000.1
1
Baier and Bergstrand, 2007.

14
As illustrated in Figure 3.1, our analysis focuses on estimating
potential changes in the GDP of these six core countries of the
Levant. We focus on GDP, which is a measure of the total output of
an economy, because it provides a proxy for the health of an econ-
omy and most existing analyses of the effects of economic integra-
tion have used GDP as an outcome. In addition, our analysis also
reports the likely consequences of integration on job creation, relying
on previous estimates of the relationships between changes in GDP
and changes in employment.2

Throughout this report, we provide both cautious and optimistic

estimates of the likely effect of this comprehensive FTA. The cautious
estimates model economic integration as a series of bilateral FTAs
and ignore the benefits from the broader regional partnership. Our
optimistic estimates factor in these anticipated larger benefits from the
regional program.

Although the comprehensive FTA itself will require some specific

domestic reforms, our analysis is deliberately cautious in that it does
not include the potential value of any broader domestic reforms that
might accompany regional integration. These additional domestic
reforms might include, for example, improved national transport
infrastructure or improved regulations for businesses and invest-
ment.3 Our estimates also do not take into account any potential
improvements in regional infrastructure (e.g., energy systems), which
would be costly and difficult to implement but might have large
economic dividends.4

2
Given our intent to produce estimates that are cautious overall, we use the lowest estimated
value that we were able to identify for each country. These values are as follows: Egypt, 0.58
(Baduel et al., 2017, p. 9); Iraq, 0.27 (Al-Alaak et al., 2014 p. 127); Jordan, 0.55 (Abdih,
Gamba, and Selim, 2014, p. 16), Lebanon, 0.20 (Robalino and Sayed, 2012, p. 14); Syria,
0.58 (Slimane, 2015); and Turkey, 0.20 (Akçoraoğlu, 2010).
3
See, e.g., World Bank, 2014, pp. 218–219.
4
As an example, our estimates do not factor in the potential benefit of regional integration in
the energy sector. Expanding intra-Levant energy trade and leveraging and expanding existing
but underutilized infrastructure could expand regional GDP by 0.8 percent (equivalent to
$12 billion in 2016). This increased energy trade will likely account for both trade in natural
gas—with hydrocarbon-rich Iraq exporting natural gas to Jordan, Lebanon, Palestine, and
Syria—and improved regional electricity systems to facilitate short-term trades during peak
seasons (World Bank, 2014, p. 144). This analysis, which is not included in the main results in
this report, is based on the assumption that increased energy trade—in conjunction with do-
mestic reforms to improve pricing and payment discipline—would reduce electricity shortages
by 50 percent, which was ranked by private-sector firms in the region as the second greatest
obstacle that they faced (World Bank Group, undated).

15
Expanded trade
could expand GDP
BY AS MUCH AS

3%
WITH NEW ECONOMIC
OPPORTUNITIES
CREATING AS MANY AS

670,000
new jobs
Trade
Reducing existing trade barriers among the six primary
Levant states—barriers that are currently among the
highest in the world5 —is estimated to increase GDP by at least
1.5 percent, potentially creating some 340,000 new jobs over a
decade.6 However, expanded trade could expand GDP by as much as
3 percent, with the new economic opportunities creating as many as
670,000 new jobs.7

Our cautious estimates model the benefit that would accrue from a
series of bilateral FTAs.8 Based on this previous evidence, we assume
that bilateral trade between states without an existing trade treaty
will double and that trade between states with existing trade agree-
ments will also grow substantially.9 We assess that these estimates

5
The Middle East has the most restrictive trade regimes of any world region: The tariff barriers
are the second highest in the world (second only to South Asia), and the region suffers from
both high nontariff barriers (e.g., rules of origin, standards and conformity assessment require-
ments) and weak infrastructure (Hoekman and Zarrouk, 2009; and Rouis and Tabor, 2012,
pp. 18–20).
6
This reflects our cautious estimate. Both our cautious and optimistic estimates assume that
bilateral trade increases gradually over a ten-year period and achieves its new level by the tenth
year. Bilateral trade data are from the International Monetary Fund (2016), and our estimates
assume that bilateral trade during the first year of the agreement for each state pair is equivalent
to the maximum historical bilateral trade between those two states. A gravity model—which
models bilateral trade as a function of GDP and which we estimate using data for only these
eight economies (see, for example, Anderson and van Wincoop, 2003)—is used to interpolate
bilateral trade for postconflict Syria and for states without recent bilateral trade (e.g., Israel and
Lebanon).
7
Estimates of the GDP impacts of trade rely on a trade-to-GDP multiplier, which is the
arithmetic relationship between a change in trade and a change in GDP. This larger estimate
assumes that the trade-to-GDP multiplier is 1 (each $1 of new trade increases GDP by $1; the
more cautious estimate we provide assumes a value of 0.5 (each $1 of new trade increases GDP
by $0.50). Existing evidence suggests that even this larger value of 1 is cautious, as this section
discusses in more detail.
8
Baier and Bergstrand, 2007, estimates—in an analysis of all FTAs signed between 1970 and
2000—that an FTA between two states roughly doubles bilateral trade after ten years.
9
We assume that bilateral trade among the four countries that are signatories to the 1997
Pan-Arab Free Trade Agreement—Iraq, Jordan, Lebanon, and Syria—expands by two-thirds.
This assumption is based on the observation that the Pan-Arab Free Trade Agreement increased
trade among these countries by only 20 percent (Harb and Shady, 2016), which is substantially
below the doubling of trade that follows the “average” FTA. Our assumption is equivalent to
assuming that the two treaties, the Pan-Arab Free Trade Agreement and the comprehensive
Levant FTA studied here, together achieve this doubling as the two-thirds expansion in trade
is on top of the 20 percent historical increase. For other existing bilateral trade agreements, we
assume that bilateral trade increases by a more modest 25 percent. This assumption is based on
the observation that regional FTAs increase trade more than bilateral FTAs (see, for example,
Kozo, 2006), though the assumed value of 25 percent is relatively arbitrary because we are not
aware of any analyses that systematically compare regional FTAs with bilateral ones.

17
represent the minimum possible economic
effect because these states exhibit a high
The economies degree of trade complementarity—that is,
where regional the key exports of one Levant state are
trade is already frequently an important import of one of
the other states10 —and we use a cautious
important assumption about the relationship between
despite weak or growth in trade and growth in GDP.11 Our
no existing trade estimates are comparable with, although
slightly more cautious than, other estimates
agreements—
and approaches.12
Iraq, Jordan,
Lebanon, and The state-specific effects of integration via
trade are illustrated in Figure 3.2. The
Syria—stand to cautious value corresponds to our minimum
benefit the most aggregate estimate of a 1.5-percent increase
from expanded in GDP, and the optimistic estimate uses
a less conservative assumption about the
trade, with
GDP impacts of increased trade.13 The
GDP growing economies where regional trade is already
by 5 percent important despite weak or no existing
or more. trade agreements—Iraq, Jordan, Lebanon,
and Syria—stand to benefit the most from
expanded trade, with GDP growing by
5 percent or more.

10
World Bank, 2014, pp. 15–16.
11
Frankel and Romer, 1999, p. 394, estimates that the trade-
to-GDP multiplier is in the range of 0.85 to 1.97 but that
“a rise of one percentage point in the ratio of trade-to-GDP
increases income per person by at least one-half percent.” For
our cautious analysis, we assume that the ratio is 0.5.
12
See, for example, Ianchovichina and Ivanic, undated.
13
Specifically, the optimistic estimate assumes that the trade-
to-GDP multiplier is 1 while the cautious estimate assumes a
multiplier of 0.5, which is the minimum reported by Frankel
and Romer, 1999.

18
FIGURE 3.2

Trade-Related Effects
of Levant Economic
Integration
Percentage change in GDP

8%

Optimistic
Cautious

6%

4%

2%

0%
EGYPT IRAQ JORDAN LEBANON SYRIA TURKEY

NOTES: The cautious estimate assumes that the trade-to-GDP multiplier is 0.5,
bilateral trade doubles for state pairs without existing agreements, and trade increases
by 67 percent for state pairs included in the Pan-Arab Free Trade Agreement and by
25 percent for all other preexisting trade agreements. The optimistic estimate assumes that
the trade-to-GDP multiplier grows to 1, doubling the overall estimated GDP impact of trade.

19
New investment
activity—domestic
and foreign—could
expand GDP
BY AS MUCH AS

1.5%
WITH NEW ECONOMIC
OPPORTUNITIES
CREATING AS MANY AS

410,000
new jobs
Investment
New investment from local and foreign investors taking
advantage of new opportunities offered by the larger market is
estimated to increase GDP by 1 percent, potentially creating
280,000 new jobs over a decade.14 If the political process requisite
for economic integration also reduces political instability, the
potential net job creation could surge to nearly 410,000 from new
investment activity alone. We model the two because the full
benefits of investment—which includes a bet by capital owners that
the government will not take their investment away or that violence
will not destroy it—will come through increased political stability.

Our cautious estimates assume that integration increases both

domestic and foreign investment and that the magnitude of this
effect is comparable with what has occurred in other preferential
trade agreements.15 Although reaping this benefit will likely require
meaningful domestic reform,16 new investment resulting from
economic integration might have a greater effect than suggested by
historical experience because a lack of high-quality investment—spe-
cifically, investment in productive sectors—has been a key constraint
on growth and job creation for decades.17

14
Our cautious estimate assumes that domestic investment as a share of GDP increases by
0.45 percentage points for each new trade partner and that this investment increases the total
physical capital stock by the equivalent amount. This result is based on Tobin and Rose-Acker-
man, 2005, p. 29, which finds that bilateral investment treaties increase domestic investment
by this amount. Mirroring our assumptions for the trade impacts (see the section on trade), we
assume that the benefit for country pairs that are signatories to the Pan-Arab Free Trade Agree-
ment is two-thirds of this benefit and that country pairs with other existing trade agreements
receive one-fourth of this benefit.
15
Although it is well-established that regional integration can also increase foreign invest-
ment—for example, Büthe and Milner, 2008, p. 750, finds that bilateral FTAs increase
foreign investment as a share of GDP by 0.22 percentage points—we assume, in the spirit of
producing cautious estimates, that the estimates of Tobin and Rose-Ackerman, 2005, capture
this effect. We note that both Farla, de Crombrugghe, and Verspagen, 2016, p. 6, and Omri
and Kahouli, 2014, p. 261, find that domestic investment increases by $0.60 for each dollar
increase in foreign investment, suggesting that foreign investment would contribute to roughly
one-third (0.22 * 0.6/0.45) of the observed change in domestic investment. Interestingly, the
size of the investment effect resulting from integration does not seem to be affected by the
size of the bloc resulting from these agreements (see, for example, Büthe and Milner, 2014),
although there are some analyses that suggest otherwise (see, for example, Jaumotte, 2004).
16
See, for example, World Bank, 2014 (p. xxx).
17
International Monetary Fund, 2016. Although investment in Israel has been more robust
than in its Arab neighbors in the Levant, such investment remains low in comparison with
other nations at a similar level of economic development (see, for example, Ben-David, 2013).

21
New investment
from local and
foreign investors Our optimistic estimates make the
taking advantage of added assumption that the comprehen-
sive FTA reduces political instability,18
new opportunities
which would increase domestic and for-
offered by the larger eign investment.19 Although this effect
market is estimated is more modest than the direct effects of
to increase GDP integration,20 increased stability will still
by 1 percent. If the provide meaningful economic dividends
because several states in the Levant have
political process
experienced and continue to experience
requisite for unusual political instability.21
economic integration
The state-specific effects of integration
also reduces
via investment are reported in Figure
political instability, 3.3. Iraq stands to receive the greatest
the potential net job benefit—with GDP expanding by more
creation could surge than 2 percent as a result of increased
to nearly 410,000 investment—although Egypt and
Turkey would each see expansion by at
from new investment
least 1.5 percent. Expanded investment
activity alone. resulting from the new trade agreements
accounts for an average of 75 percent of
the benefit, and the countries with the greatest political instability
(Egypt, Iraq, and Syria) exhibit the greatest relative benefit from
increased stability.

We assume a 75-percent reduction in political instability, which is arbitrary but consistent

18

with the notion of an increasingly stable region imagined for this comprehensive FTA.
19
Büthe and Milner, 2008, p. 750, estimate that each one-point reduction in their measure of
instability would increase foreign investment as a share of GDP by 0.0153 percentage points.
These authors measure political instability as the sum of the eight measures of domestic political
instability reported in the Cross-National Time-Series Data Archive (Databanks International,
2017). We assume that the total capital stock increases by $1 for every $1 in increased foreign
investment associated with reduced instability, though this likely understates the total effect:
Farla, de Crombrugghe, and Verspagen, 2016, and Omri and Kahouli, 2014 demonstrate that
each $1 of foreign investment is associated with a $0.60 increase in domestic investment.
20
Estimates reported in Büthe and Milner, 2008, p. 750, indicate that each additional trade
agreement is equivalent to an approximate three standard deviation change in political instabil-
ity.
21
We are specifically referencing the composite measure of instability used by Büthe and Milner,
2008, which factors in the number of assassinations, general strikes, guerilla warfare (insurgen-
cy) events, government crises, purges, riots, revolutions, and anti-government demonstrations.
Three of the countries (Egypt, Iraq, Syria) have political instability three standard deviations
above the average in 2011–2016, and Turkey is more than two standard deviations above the
average. The assessments of political instability in these four countries are driven by three cate-
gories: guerilla warfare, riots, and anti-government protests.

22
FIGURE 3.3

Investment-Related
Effects of Levant
Economic Integration
Percentage change in GDP

3%

2%

Optimistic
Cautious

1%

0%
EGYPT IRAQ JORDAN LEBANON SYRIA TURKEY

NOTES: The cautious estimate is based on the assumption that gross fixed capital
formation as a share of GDP increases by 0.45 percentage points for each new trading
partner (Tobin and Rose-Ackerman, 2005). The optimistic estimate makes the additional
assumption that political instability is reduced by 75 percent. Data on the capital stock
are from Feenstra, Inklaar, and Timmer, 2015. GDP and gross fixed capital formulation
are from the World Development Indicators database (World Bank, various years), and
political instability data are from the Cross-National Time-Series Data Archive (Databanks
International, 2017). Estimates of the capital stock of Palestine are from Anthony et al.,
2015, p. 61. Estimates of Syrian GDP combine the 2007 data available in the World
Development Indicators with the observation in World Bank, 2017, p. 17, that GDP has
fallen by two-thirds during the conflict, and estimates of the capital stock combine the
World Development Indicators’ preconflict data with estimates from Egel el al., 2017, on the
magnitude of the total destruction of physical capital wrought from the conflict ($24 billion).

23
Expanded tourism
and travel could
expand GDP
BY AS MUCH AS

2%
WITH NEW ECONOMIC
OPPORTUNITIES
CREATING AS MANY AS

570,000
new jobs
Tourism and Travel
Tourism and travel are critical components of the economies
of the Levant, accounting for 11 percent of regional GDP.22
We estimate that a comprehensive FTA would increase average GDP
by at least 0.3 percent, potentially creating 90,000 new jobs, as a
consequence of new economic opportunities related to tourism and
travel.23 And if the states of this newly forming economic bloc could
coordinate effectively in promoting tourism and travel, this sector
alone could create nearly 570,000 new jobs.24

Our cautious estimates for the effect of integration on tourism and

travel relies on a simple observation: Visa restrictions reduce the
amount of tourism.25 In addition, economic integration could create
new opportunities for collaboration in tourism, spurring enhanced
growth in this sector; for example, effective coordination in promot-
ing tourism likely contributed to the rapid growth in this sector in
Southeast Asia.26

22
We developed this estimate based on the state-specific total contributions of trade and tourism
to GDP as reported by the World Travel & Tourism Council, 2018 (see the reports for Egypt,
Iraq, Israel, Jordan, Lebanon, Syria, and Turkey). Data for Palestine were not available from this
source, so we estimated this using data available from the World Tourism Organization, 2018.
Specifically, we assumed that this total contribution variable is proportional to the “Inbound
Tourism Expenditure over GDP” variable available in the World Tourism Organization data, and
we estimated the Palestine value based on the ratio of the two variables for Jordan.
23
This estimate assumes that all bilateral visa restrictions are removed and that the elimination
of each visa restriction is associated with a 0.8-percent increase in aggregate tourism. This
estimate is based on Lawson and Roychoudhury, 2016, Table 2, which finds that a one-point
increase in the authors’ “Ease of Travel for Foreigners” measure increases tourism by 1.5 per-
cent. Because there are 187 countries in the authors’ linear index, each additional visa restric-
tion would correspond to a 1.5 * (100/187) = 0.8 percent change in tourism. Note that this
estimate is modest, with each of the countries experiencing a 6-percent (on average) increase in
tourism. Other estimates suggest that FTAs could have much larger effects (see, for example,
Saayman, Figini, and Cassella, 2016).
24
This assumes that integration increases the annual growth rate in tourism by 1 percent, in
addition to the one-time increases in tourism income associated with the elimination of visa
restrictions.
25
Requiring a visa has been shown to reduce tourism from a given country by 70 percent (Lawson
and Roychoudhury, 2016). This might understate the impact of the FTA; restrictions on trade
in goods and services (which will also be reduced as part of the comprehensive FTA) also reduce
tourism (World Bank, 2014, Chapter 8). This approach is likely to particularly understate the
benefit for Israel and Palestine, where tourism has been stifled by, respectively, conflict and Israe-
li-imposed restrictions (Anthony et al., 2015, pp. 28, 31–32; and Fleischer and Buccola, 2002).
26
Coordination among countries in the Association of Southeast Asian Nations likely contrib-
uted to the rapid growth rate in tourism in those countries. Their tourism growth rates have
outperformed the rest of the world by 2.5 percentage points (Wong, Mistilis, and Dwyer,
2011, p. 883).

25
The state-specific effects of integration
If the states from tourism and travel are illus-
of this newly trated in Figure 3.4. The elimination
of bilateral visas within the regional
forming bloc—assuming that all six economies
economic bloc are included—is anticipated to increase
could coordinate GDP by around 0.5 percent in each
state. Regional cooperation dramat-
effectively in
ically increases the outcome. The
promoting relative benefit of regional cooperation
tourism and for Jordan is particularly large because
travel, this its visa restrictions are more permissive
than its neighbors, and it benefits less
sector alone
from visa liberalization.
could create
nearly 570,000
new jobs.

26
FIGURE 3.4

Tourism- and Travel-Related

Effects of Levant Economic
Integration
Percentage change in GDP

4%

3%

Optimistic
Cautious

2%

1%

0%
EGYPT IRAQ JORDAN LEBANON SYRIA TURKEY

NOTES: The cautious estimates assume that the elimination of each bilateral visa restriction
is associated with a 0.8-percent increase in aggregate tourism (authors’ estimates
based on Lawson and Roychoudhury, 2016, Table 2). The optimistic estimate makes the
additional assumption that regional coordination increases growth in the tourism sector
by 1.0 percent per year. Data is from World Travel & Tourism Council, 2018, and World
Tourism Organization, 2018.

27
4

An Israeli-
Palestinian
Dividend?

T
he potential economic dividend from the resolution of the
Israeli-Palestinian conflict has long been offered as an incen-
tive to both parties in the conflict. Economic “inducements”
were a central tool used by the United States to facilitate the
Oslo process,1 and were similarly a key component of the Arab Peace
Initiative, in which the nations of the Arab League offered to nor-
malize economic and political relationships with Israel in exchange
for peace. In 2015, a study by the RAND Corporation estimated
that peace through a Two State Solution—including the benefits
from increased trade throughout the region as envisaged by the Arab
Peace Initiative—would increase Israeli GDP by 5 percent and Pales-
tinian GDP by 44 percent.2

Our analysis suggests that the benefits of an Israeli-Palestinian peace

would be significantly higher if it also offered a pathway for those
two economies to join a comprehensive Levant FTA. When our esti-
mates of the benefit of a comprehensive FTA are combined with the
other dividends from peace detailed in RAND’s previous analysis,
the net benefit to Israel increases to more than 9 percent of GDP
and the net benefit for Palestine increases to more than 60 percent

1
In this case, it was direct foreign assistance rather than the potential dividend from peace. Al-
though these inducements reportedly “provided momentum to the peace process, underwrote
practicalities, and smoothed over periodic crises in the negotiation,” they “did not bring either
side to the table” nor did they prevent the collapse of the process (Lasensky, 2004, p. 211).
2
Anthony et al., 2015, pp. xlv–xlvi.

28
of GDP.3 Integrating Israel and Palestine into this FTA would also
create substantial benefit for the rest of the Levant, creating an addi-
tional 310,000 new jobs across the FTA’s other six members—equiv-
alent to a 20-percent increase in the FTA’s benefit.

3
This current analysis includes only trade with the Levant and not the broader Arab world;
it does not include the benefits of enhanced labor integration between Israel and Palestine,
territorial control, or access to water; and it ignores the “direct costs” of the conflict between
Israel and Palestine studied in Anthony et al., 2015. The additional benefit to Israel is likely
to be at least $4 billion more than estimated in this current report (the benefit from increased
Palestinian labor and 50 percent of the benefit of Arab world trade) and the comparable benefit
for Palestine is $2 billion (direct costs plus the benefit from control of territory and access to
water) as reported in Anthony et al., 2015, p. xxxiv–xxxv.

29
30
5

Realizing
the Promise

O
ur estimates of the benefits of integration are large, with
cautious estimates suggesting that GDP could expand by
more than 7 percent and that more than 1.6 million jobs
might be created. However, past efforts to deepen Levant
integration have faltered because economic integration is inextricably
linked to, and subsumed by, the broader regional conflicts. Although
the prospect of shared economic prosperity has long been envisaged
as a “dividend” from regional peace and cooperation, realizing these
benefits requires collective action for regional prosperity.

Regional integration has, and should be, correlated with regional

security cooperation. This was certainly the trend in the evolution
of the European Union. It was also the case in the early Shamgen
discussions and in the more-recent Iraq-Jordan economic agreements
and trilateral Egypt-Iraq-Jordan summit. Trade and business are
jeopardized by war and conflict, and the costs of conflict for this
region have been severe. Most dramatically, the conflict in Syria has
wiped out some two-thirds of Syria’s economy,1 but the Israeli-
Palestinian conflict costs more than $3 billion a year and those costs
could grow dramatically if the conflict degrades further.2 Resolving

1
This two-thirds decrease reflects a 93-percent decrease in activity in the hydrocarbon sector,
which accounted for 12 percent of Syrian GDP before the conflict, and a 52-percent contrac-
tion in the non-oil economy because of “destruction of infrastructure, reduced access to fuel
and electricity, low business confidence, and disruption of trade” (estimates of damage are from
World Bank, 2017, p. vii; hydrocarbons as share of overall preconflict GDP is from Gobat and
Kostial, 2016, p. 10). As mentioned earlier, our analysis assumes that Syrian GDP returns to
preconflict levels by the end of a decade.
2
Anthony et al., 2015, p. xxxiv, finds that the opportunity costs of the status quo, compared
with the two-state solution, is $32.5 billion over a decade. If the conflict degrades, that oppor-
tunity cost could reach as much as $85 billion over a decade.

31
these conflicts while pursuing economic integration and cooperation
could be the start of a potential takeoff for the region.

Despite the region’s modern legacy of conflict and poor governance

and its many political faultlines, a shared history and geography can
inspire leaders and people of the region to envision a more peaceful
and prosperous future. Two practical steps can be taken to support
ongoing, organic efforts at Levant economic integration. A first
step is to encourage more-expansive discussions of regional engage-
ment, building on the Shamgen experience, and, more recently, the
Iraq-Jordan-Egypt trade agreements. A dialog about the benefits of
a shared economic future should complement inclusive political and
cultural exchanges and feature direct engagement with policymak-
ers and outreach via traditional media and social media, providing
information in a format that is transparent and accessible to a broad
variety of audiences.

A second step is to work with these countries to adequately plan and

prepare for the new opportunities that Levant economic integration
will bring, especially for postconflict development and reconstruc-
tion in Syria and the region. Short-term economic disruption as a
consequence of increased movement of goods, people, capital, and
services is inevitable.3 Facilitating deliberate planning involving
representatives from government, industry, labor organizations, and
other groups can help these countries prepare for potential disrup-
tions and maximize the benefits of integration.

To support this planning process, we have developed an online

tool—available at www.rand.org/levant-calculator—to make the
results in this study accessible to policymakers and the public. This
tool allows users to vary key assumptions about the movement of
goods, people, and capital and explore different combinations of
countries participating in the FTA, including Israel and Palestine.

This tool, illustrated in Figure 5.1, has three primary goals. The first
is to allow users to explore alternative arrangements for a poten-
tial comprehensive trade agreement in this region. The benefits of
integration increase for larger blocs of countries and with reduced
restrictions on the movement of goods, people, and capital among
3
The FTA between Jordan and Turkey is a cautionary tale in this regard. See, for example,
Ghazal, 2017.

32
FIGURE 5.1

Online Tool for Assessing the

Economic Value of Levant
Economic Integration

The online calculator is available at

www.rand.org/levant-calculator.

33
these countries. But we recognize that regional integration might
start with only a subset of countries and with only partial economic
integration. This tool allows examination of the benefits of these
alternative arrangements.

The second goal is to provide complete transparency about the analy-

sis underlying the results in this report. Our results, however cau-
tious, suggest that the benefits from integration are large. The tool
explains each of the key underlying assumptions and allows users
to vary those assumptions, thus exploring how the net benefit will
change. It thus provides a novel approach for users to understand
how and why the benefits from economic integration will accrue.

The final goal of this tool is to allow users to explore the benefits
of more-optimistic assumptions about economic integration in the
Levant—including a larger Levant and one with greater coordina-
tion in trade, investment, and tourism and travel.

34
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N AT I O N A L S E C U R I T Y R E S E A R C H D I V I S I O N

E
conomic integration in the Levant—in the form of
a comprehensive free trade agreement (FTA) that
eliminates tariffs, lowers investment and nontariff
barriers, and waives visa requirements—could
increase the average gross domestic product of the
Levant nations by 3–7 percent. This economic expansion
would likely create at least 0.7 million to 1.7 million
additional new jobs, reducing regional unemployment
rates by 8–18 percent—and total job creation might be
substantially larger. These estimates are for a potential
FTA among Egypt, Iraq, Jordan, Lebanon, Syria, and
Turkey—six of the core Levant countries.

The authors have also developed an online tool that allows

policymakers and the public to examine the economic
dividend from economic integration. It allows users to
(1) vary key assumptions about the movement of goods,
people, and capital and (2) explore different combinations
of countries participating in the FTA—even allowing the
inclusion of Israel and the West Bank and Gaza, the latter
two of which are referred to as Palestine. The benefits
increase for larger blocs of countries and with reduced
restrictions on the movement of goods, people, and
capital among these countries. The authors recognize
that regional integration might start with only a subset
of countries and with only partial economic integration:
The tool also allows examination of the benefits of these
alternative arrangements.

The online calculator is available at

www.rand.org/levant-calculator.

$15.00
ISBN-10 1-9774-0356-5
ISBN-13 978-1-9774-0356-8
51500

9 781977 403568
RR-2375-NLI