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The perversity of preferences: GSP and developing country trade policies, 1976-2000

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  • Ozden, Caglar
  • Reinhardt, Eric

Abstract

Industrial countries maintain special tariff preferences, namely the Generalized System of Preferences (GSP), for importsfrom developing countries. Critics have highlighted the underachieving nature of such preferences, but developing countries continue to place the GSP at the heart of their agenda in multilateral negotiations. What effect do such preferences have on a recipient's own trade policies? The authors develop and test a simple theoretical model of a small country's trade policy choice, using a dataset of 154 developing countries from 1976 through 2000. They find that countries removed from the GSP adopt more liberal trade policies than those remaining eligible. The results, corrected for endogeneity and robust to numerous alternative measures of trade policy, suggest that developing countries may be best served by full integration into the reciprocity-based world trade regime rather than continued GSP-style special preferences.
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  • Ozden, Caglar & Reinhardt, Eric, 2005. "The perversity of preferences: GSP and developing country trade policies, 1976-2000," Journal of Development Economics, Elsevier, vol. 78(1), pages 1-21, October.
    • Handle: RePEc:eee:deveco:v:78:y:2005:i:1:p:1-21
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    More about this item

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation

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