The effect of preferential tariffs of the EU: Some evidence from B&H

The process of trade liberalization is more or less accompanied by a reduction or elimination of tariffs. In this sense, the preferential tariffs for foreign exporters aim to increase trade flows, ensure access to foreign markets and achieve social welfare. Namely, both before and after the signing of the Stabilization and Association Agreement in 2000, Bosnia and Herzegovina (B&H) realized some benefits from the reduction of preferential tariffs of the EU which aimed to ease the access of B&H products to the EU market. Accordingly, the question arises to what extent the preferential tariffs of the EU may lead to an increase in exports of products from the six leading sectors of B&H, observed on the basis of the volume of exports. In order to assess the effect of the preferential tariffs on the export of six leading sector of B&H, we applied the gravity equation, aggregate data on an annual basis from 1995 to 2015, and some econometric techniques, such as pooled OLS, fixed effects, random effects and dynamic panel GMM. The results of the coefficients have shown that the average preferential tariffs are significant, i.e. that have a positive effect on the overall exports. On the other hand, the results of the coefficient estimates of the average preferential tariffs on the individual export of six leading sectors have shown a significant effect in the case of half the sectors.