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Abstract
The United States implemented the Qualifying Industrial Zones (QIZ) agreement in 2004 to promote economic normalization between Egypt and Israel. The agreement granted Egypt non-reciprocal duty-free access to US markets for goods that contain 11.7 percent Israeli-manufactured components. Previous literature has found that Egyptian-US trade volumes increased post-QIZ, but effects on Egyptian-Israeli trade have remained unexplored. This paper utilizes Egyptian and Israeli trade data to evaluate the spillover effects of non-tariff trade barrier elimination from the QIZ agreement on marginal trade growth. Using a commodity-level difference-in-differences approach, I find negative effects of the agreement on Egyptian exports to Israel, driven primarily by the extensive margin. Using an aggregate-level synthetic control, I find no effects on Egyptian or Israeli bilateral export volumes after employing log specification and ridge bias correction. Interpretation of the commodity-level results is limited due to violations of parallel trends and control group selection issues. Underlying data issues and pretreatment length may limit aggregate interpretations, though they are markedly more confident. Nonetheless, this paper provides potential novel contributions to the value of bias-corrected synthetic controls in trade agreement literature, the potential social and political impediments to non-tariff trade barrier elimination, and an evaluation of the efficacy of US normalization policy in the Middle East.