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Price Effects of Preferential Market Access: Caribbean Basin Initiative and the Apparel Sector

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  • Çaglar Özden
  • Gunjan Sharma

Abstract

Preferential trade arrangements should be evaluated by their effect on prices rather than by their effect on the total value of trade. This point is emphasized in the theoretical literature but rarely implemented empirically. This article analyzes the U.S. Caribbean Basin Initiative's ( cbi 's) impact on the prices received by eligible apparel exporters. The cbi 's apparel preferences are the most important and heavily used unilateral preferences because of high trade barriers imposed on exports from the rest of the world. A fixed-effects generalized least squares ( gls ) estimation is used to isolate the effects of other factors (such as quality, exchange rates, and transaction costs) and to identify the effects of tariff preferences. cbi exporters capture only about two-thirds of their preference margin despite the high degree of competition among importers. This translates into a 9 percent increase in the relative prices they receive, with some variance across countries and years. Countries specializing in higher value items capture more of the preference margin, and the implementation of the North American Free Trade Agreement ( nafta ) has a negative effect. Removing Multifibre Arrangement quotas significantly lowers the benefits of cbi preferences. Copyright 2006, Oxford University Press.

Suggested Citation

  • Çaglar Özden & Gunjan Sharma, 2006. "Price Effects of Preferential Market Access: Caribbean Basin Initiative and the Apparel Sector," World Bank Economic Review, World Bank Group, vol. 20(2), pages 241-259.
  • Handle: RePEc:oup:wbecrv:v:20:y:2006:i:2:p:241-259
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    Cited by:

    1. Hayakawa, Kazunobu & Nuttawut, Laksanapanyakul & Shiino, Kohei, 2013. "Some practical guidance for the computation of free trade agreement utilization rates," IDE Discussion Papers 438, Institute of Developing Economies, Japan External Trade Organization(JETRO).
    2. Kazunobu HAYAKAWA & Nuttawut LAKSANAPANYAKUL & Shujiro URATA, 2015. "Firm-level Impact of Free Trade Agreements on Import Prices," Working Papers DP-2015-33, Economic Research Institute for ASEAN and East Asia (ERIA).
    3. Kazunobu HAYAKAWA & Tadashi ITO, 2015. "Tariff Pass-through of the World-wide Trade: Empirical Evidence at Tariff-line Level," Working Papers DP-2015-34, Economic Research Institute for ASEAN and East Asia (ERIA).
    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. World Bank, 2005. "Dominican Republic : Review of Trade and Labor Competitiveness," World Bank Other Operational Studies 8531, The World Bank.
    6. Hayakawa Kazunobu, 2015. "Impacts of FTA Utilization on Firm Performance," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 15(3), pages 1325-1352, July.
    7. Olivier Cadot & Jaime de Melo, 2015. "Why OECD Countries Should Reform Rules of Origin," World Scientific Book Chapters,in: Developing Countries in the World Economy, chapter 16, pages 381-409 World Scientific Publishing Co. Pte. Ltd..
    8. Hayakawa, Kazunobu, 2017. "Asymmetric tariff pass-through to trade prices," IDE Discussion Papers 631, Institute of Developing Economies, Japan External Trade Organization(JETRO).
    9. Hayakawa, Kazunobu & Kimura, Fukunari & Laksanapanyakul, Nuttawut, 2016. "Firm-level trade creation and diversion of regional trade agreements in Thailand," IDE Discussion Papers 621, Institute of Developing Economies, Japan External Trade Organization(JETRO).
    10. Kazunobu Hayakawa & Nuttawut Laksanapanyakul & Hiroshi Mukunoki & Shujiro Urata, 2016. "Impact of Free Trade Agreement Utilisation on Import Prices," Working Papers DP-2016-24, Economic Research Institute for ASEAN and East Asia (ERIA).
    11. 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 5783, C.E.P.R. Discussion Papers.
    12. Yeboah, Osei-Agyeman & Shaik, Saleem & Batson, Seon, 2009. "The Trade Effects of MERCOSUR and The Andean Community on U.S. Cotton Exports to CBI countries," 2009 Annual Meeting, January 31-February 3, 2009, Atlanta, Georgia 46028, Southern Agricultural Economics Association.
    13. 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.
    14. 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 436, Institute of Developing Economies, Japan External Trade Organization(JETRO).
    15. Hayakawa, Kazunobu & Laksanapanyakul, Nuttawut & Yoshimi, Taiyo, 2016. "Firm-level utilization rates of regional trade agreements : importers' perspective," IDE Discussion Papers 615, Institute of Developing Economies, Japan External Trade Organization(JETRO).
    16. Toshiyuki Matsuura & Kazunobu Hayakawa & Nuttawut LAKSANAPANYAKUL & Yuta Watabe, 2014. "Price and Quality Changes in Outsiders of Regional Trade Agreements," Working Papers e84, Tokyo Center for Economic Research.

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