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Price effects of preferential market access : the Caribbean Basin Initiative and the apparel sector

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  • Ozden, Caglar
  • Sharma, Gunjan

Abstract

Preferential trade arrangements should be evaluated by analyzing their effect on prices, rather than the total value of trade, as emphasized in the theoretical literature but rarely implemented empirically. The authors analyze the impact of the unilateral preferences granted by the U.S. Caribbean Basin Initiative (CBI) on the prices received by eligible apparel exporters. They use fixed effects generalized least squares (GLS) estimation to isolate the effects of various other factors (such as quality, exchange rates, and transactions costs) and identify the effects of tariff preferences. The authors find that CBI exporters only capture around two-thirds of their preference margin, despite the fairly competitive nature of the apparel market. This translates into a 9 percent increase in the relative prices they receive, but these numbers vary across countries and years. Countries specializing in higher-value items capture more of the preference margin while implementation of the North American Free Trade Agreement has a negative effect. The authors analyze the effect of Multi-Fibre Agreement (MFA) quotas imposed on third countries (such as China) and find that the benefits of CBI preferences will be significantly reduced once the quotas are fully removed in 2005.

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Bibliographic Info

Paper provided by The World Bank in its series Policy Research Working Paper Series with number 3244.

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Date of creation: 01 Mar 2004
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Handle: RePEc:wbk:wbrwps:3244

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Cited by:
  1. Cadot, Olivier & Carrère, Céline & de Melo, Jaime & Portugal-Pérez, Alberto, 2005. "How Much Market Access in FTAs? Textiles Under NAFTA," CEPR Discussion Papers, C.E.P.R. Discussion Papers 5264, C.E.P.R. Discussion Papers.
  2. Lederman, Daniel & Rodriguez-Clare, Andres & Yi Xu, Daniel, 2010. "Entrepreneurship and the extensive margin in export growth : a microeconomic accounting of Costa Rica's export growth during 1997-2007," Policy Research Working Paper Series 5376, The World Bank.
  3. 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, C.E.P.R. Discussion Papers 5783, C.E.P.R. Discussion Papers.
  4. 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.
  5. 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.
  6. World Bank, 2005. "Dominican Republic : Review of Trade and Labor Competitiveness," World Bank Other Operational Studies 8531, The World Bank.
  7. Olivier Cadot & Jaime de Melo, 2007. "Why OECD Countries Should Reform Rules of Origin," World Bank Research Observer, World Bank Group, World Bank Group, vol. 23(1), pages 77-105, October.
  8. Lawrence, Robert Z. & Rosito, Tatiana, 2006. "A New Compensation Mechanism for Preference Erosion in the Doha Round," Working Paper Series, Harvard University, John F. Kennedy School of Government rwp06-044, Harvard University, John F. Kennedy School of Government.
  9. 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, Institute of Developing Economies, Japan External Trade Organization(JETRO) 436, Institute of Developing Economies, Japan External Trade Organization(JETRO).
  10. Hayakawa, Kazunobu & Nuttawut, Laksanapanyakul & Shiino, Kohei, 2013. "Some practical guidance for the computation of free trade agreement utilization rates," IDE Discussion Papers, Institute of Developing Economies, Japan External Trade Organization(JETRO) 438, Institute of Developing Economies, Japan External Trade Organization(JETRO).

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