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The Dark Side of the Generalized System of Preferences

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  • Bernhard Herz
  • Marco Wagner

Abstract

The Generalized System of Preferences (GSP) was established to promote the exports of low-income countries to industrialized countries in order to support their economic growth and development. However, the design of these schemes is rather complex and the effects of GSP have been found to be controversial. While previous studies solely analyzed preferential agreements of individual granting countries separately, implying a one-sided perspective, we take a general view and investigate the overall and dynamic effects common to the various GSP schemes in order to provide generalized recommendations for economic policy. In our empirical analysis, based on an extensive dataset covering most of world trade, we find that GSP tends to foster developing countries' exports in the short-run, but hampers them in the long-run. Also, GSP granting countries are able to promote their own exports initially, while in the long-run their exports decrease. Economically advanced GSP recipients 1 are more likely to benefit from GSP than less advanced countries. Taken together, GSP does not seem to be a suitable instrument to promote sustainable economic growth and development of low-income countries.
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  • Bernhard Herz & Marco Wagner, 2011. "The Dark Side of the Generalized System of Preferences," Review of International Economics, Wiley Blackwell, vol. 19(4), pages 763-775, September.
    • Handle: RePEc:bla:reviec:v:19:y:2011:i:4:p:763-775
    DOI: j.1467-9396.2011.00980.x
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    JEL classification:

    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F55 - International Economics - - International Relations, National Security, and International Political Economy - - - International Institutional Arrangements

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