Abstract:
The Cotonou accord CA of 2000 set in motion the negotiation of an economic partnership agreement EPA between the African, Caribbean and Pacific (ACP) countries and the European Union. The basic EU demand on ACP countries is the reduction of applied tariffs against EU imports through a compendium of evolving requirements of cooperation that will eventually lead to zero tariffs by 2020. Since inception, many studies have been conducted on the trade and growth effects of the agreement if eventually implemented. The current study adds to the body of these literatures by addressing the country specific implications of the trade arrangement on government revenue structure and its transmission effects on volatility and income equality in Nigeria, using two analytical approaches First, the study used a Computable General Equilibrium simulation (CGES) to determine the impact of 0% and 25% tariff regimes on government oil and non-oil revenue (putting side by side the implications of considering oil as either a tradable or non-tradable). Secondly, the outcome (result from the CGE simulation) was further, used as an imputed parameter for the second level of partial equilibrium simulation (PES) of the macroeconomic instability and inequality implication of these changing revenue structures. The result showed that the EU-ACP would improve the revenue from the oil sector to the detriment of the non-oil sector. It also revealed that decrease in government revenue would increase macroeconomic instability and degree of inequality-induced volatility. However, the magnitude of this effect depends on, whether oil is considered as a tradable in the trade negotiation and means of generating alternative revenue to cushion the effects of these losses in revenue. If oil is modelled as tradable, imposing a maximum of 25% tariff, on EU’s imports will increase output volatility but the degree of inequality will reduce, signifying that oil revenue blankets the negative welfare effect of the partnership. The study also concluded that a zero tariff regime (whether oil is a tradable or not) will increase macroeconomic instability and inequality-induced output volatility.
