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Trade diversion under selective preferential market access

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  • Borchert, Ingo

Abstract

Through its diverse trade preference schemes, the European Union provides different groups of developing countries with different degrees of market access. This paper is the first to demonstrate empirically that such staggered market access induces sizable trade diversion to the detriment of relatively less preferred beneficiary countries. In particular, preferences granted to African, Caribbean and Pacific economies are shown to impair the export performance of seven developing countries whose products only qualify for basic preferences under the Generalized System of Preferences. Exports to the European Union decline by about 30 percent if the African, Caribbean and Pacific tariff falls by 10 percentage points. In terms of forgone trade volume, losses for these relatively disadvantaged countries amount on average to 9 percent of their total trade with the European Union, depending on the country and its main exports. These intra-developing country distortions are driven by highly substitutable, often labor-intensive commodities.

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Bibliographic Info

Paper provided by The World Bank in its series Policy Research Working Paper Series with number 4710.

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Date of creation: 01 Sep 2008
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Handle: RePEc:wbk:wbrwps:4710

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Keywords: Free Trade; Trade Policy; Trade Law; Debt Markets; International Trade and Trade Rules;

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  1. Christian Broda & David E. Weinstein, 2006. "Globalization and the Gains from Variety," The Quarterly Journal of Economics, MIT Press, vol. 121(2), pages 541-585, May.
  2. Hoekman, Bernard & Ozden, Caglar, 2005. "Trade preferences and differential treatment of developing countries : a selective survey," Policy Research Working Paper Series 3566, The World Bank.
  3. Jon D. Haveman & Usha Nair-Reichert & Jerry G. Thursby, 2003. "How Effective are Trade Barriers? An Empirical Analysis of Trade Reduction, Diversion, and Compression," The Review of Economics and Statistics, MIT Press, vol. 85(2), pages 480-485, May.
  4. David Hummels & Alexandre Skiba, 2004. "Shipping the Good Apples Out? An Empirical Confirmation of the Alchian-Allen Conjecture," Journal of Political Economy, University of Chicago Press, vol. 112(6), pages 1384-1402, December.
  5. Arvind Panagariya, 2003. "EU Preferential Trade Policies and Developing Countries," International Trade 0308014, EconWPA.
  6. Kyoji Fukao & Toshihiro Okubo & Robert M Stern, 2002. "An Econometric Analysis of Trade Diversion under NAFTA," Working Papers 491, Research Seminar in International Economics, University of Michigan.
  7. Amelia Santos-Paulino & A. P. Thirlwall, 2004. "The impact of trade liberalisation on exports, imports and the balance of payments of developing countries," Economic Journal, Royal Economic Society, vol. 114(493), pages F50-F72, 02.
  8. Karacaovali, Baybars & Limão, Nuno, 2005. "The Clash of Liberalizations: Preferential vs. Multilateral Trade Liberalization in the European Union," CEPR Discussion Papers 4973, C.E.P.R. Discussion Papers.
  9. Keith Head & John Ries, 2001. "Increasing Returns versus National Product Differentiation as an Explanation for the Pattern of U.S.-Canada Trade," American Economic Review, American Economic Association, vol. 91(4), pages 858-876, September.
  10. André Sapir, 1981. "Trade benefits under the EEC generalized system of preferences," ULB Institutional Repository 2013/8290, ULB -- Universite Libre de Bruxelles.
  11. Lorand Bartels, 2003. "The WTO Enabling Clause and Positive Conditionality in the European Community's GSP Program," Journal of International Economic Law, Oxford University Press, vol. 6(2), pages 507-532, June.
  12. John Romalis, 2007. "NAFTA's and CUSFTA's Impact on International Trade," The Review of Economics and Statistics, MIT Press, vol. 89(3), pages 416-435, August.
  13. Grossman, Gene M. & Sykes, Alan O., 2005. "A preference for development: the law and economics of GSP," World Trade Review, Cambridge University Press, vol. 4(01), pages 41-67, March.
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Cited by:
  1. Persson, Maria, 2013. "Trade Preferences from a Policy Perspective," Working Papers 2013:3, Lund University, Department of Economics.
  2. Katerina Gradeva & Inmaculada Martínez-Zarzoso, 2009. "Trade as Aid: The Role of the EBA-Trade Preferences Regime in the Development Strategy," Ibero America Institute for Econ. Research (IAI) Discussion Papers 197, Ibero-America Institute for Economic Research.

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