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Price Effects of Preferential Market Access: Caribbean Basin Initiative and the Apparel Sector

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  • �aglar Özden
  • Gunjan Sharma

Abstract

Preferential trade arrangements should be evaluated by their effect on prices rather than by their effect on the total value of trade. This point is emphasized in the theoretical literature but rarely implemented empirically. This article analyzes the U.S. Caribbean Basin Initiative's ( cbi 's) impact on the prices received by eligible apparel exporters. The cbi 's apparel preferences are the most important and heavily used unilateral preferences because of high trade barriers imposed on exports from the rest of the world. A fixed-effects generalized least squares ( gls ) estimation is used to isolate the effects of other factors (such as quality, exchange rates, and transaction costs) and to identify the effects of tariff preferences. cbi exporters capture only about two-thirds of their preference margin despite the high degree of competition among importers. This translates into a 9 percent increase in the relative prices they receive, with some variance across countries and years. Countries specializing in higher value items capture more of the preference margin, and the implementation of the North American Free Trade Agreement ( nafta ) has a negative effect. Removing Multifibre Arrangement quotas significantly lowers the benefits of cbi preferences. Copyright 2006, Oxford University Press.

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Bibliographic Info

Article provided by World Bank Group in its journal The World Bank Economic Review.

Volume (Year): 20 (2006)
Issue (Month): 2 ()
Pages: 241-259

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Handle: RePEc:oup:wbecrv:v:20:y:2006:i:2:p:241-259

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Cited by:
  1. Cadot, Olivier & de Melo, Jaime & Portugal-Pérez, Alberto, 2006. "Rules of Origin for Preferential Trading Arrangements: Implications for AFTA of EU and US Regimes," CEPR Discussion Papers 5783, C.E.P.R. Discussion Papers.
  2. Hayakawa, Kazunobu & Nuttawut, Laksanapanyakul & Shiino, Kohei, 2013. "Some practical guidance for the computation of free trade agreement utilization rates," IDE Discussion Papers 438, Institute of Developing Economies, Japan External Trade Organization(JETRO).
  3. Cadot, Olivier & de Melo, Jaime, 2007. "Why OECD Countries should Reform Rules of Origin," CEPR Discussion Papers 6172, C.E.P.R. Discussion Papers.
  4. Hayakawa, Kazunobu & Yang, Chih-Hai, 2013. "How do free trade agreements change import prices? : firm-level evidence from China's imports from ASEAN," IDE Discussion Papers 436, Institute of Developing Economies, Japan External Trade Organization(JETRO).
  5. Yeboah, Osei-Agyeman & Shaik, Saleem & Batson, Seon, 2009. "The Trade Effects of MERCOSUR and The Andean Community on U.S. Cotton Exports to CBI countries," 2009 Annual Meeting, January 31-February 3, 2009, Atlanta, Georgia 46028, Southern Agricultural Economics Association.
  6. World Bank, 2005. "Dominican Republic : Review of Trade and Labor Competitiveness," World Bank Other Operational Studies 8531, The World Bank.
  7. Daniel Lederman & Marcelo Olarreaga, 2006. "Recent Evidence on Private Sector Capabilities, Trade Liberalization, Foreign Direct Investment, and Deregulation Are Not Enough," World Bank Other Operational Studies 8204, The World Bank.
  8. Cooke, Edgar F A, 2011. "The impact of trade preferences on exports of developing countries: the case of the AGOA and CBI preferences of the USA," MPRA Paper 31439, University Library of Munich, Germany.

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