The impact of preferences on developing countries’ exports to the European Union: bilateral gravity modelling at the product level

Unilateral preferences aim at increasing exports from developing countries via reductions on applied tariffs and the incentives created by the preference margin. After decades of existence, the evidence as to the extent to which preferential schemes have been genuinely effective in increasing exports is mixed. This paper evaluates the impact of the European Union’s (EU) unilateral preferential regimes on the exports of developing countries using a bilateral gravity model at the product level. We use a unique dataset that allows us to determine the actual tariff rate paid by each export flow at the product level (combined nomenclature CN-10 digits) to the EU and the preferential regime of entry. This allows us to accurately specify the impact of each trade regime and to properly address the issue of utilisation and non-utilisation of trade preferences. The most important findings of the paper are that unilateral preferences have been effective in increasing exports to the EU both as a result of the direct effect of lower tariffs and positive preference margin, and because of secondary effects associated with the preference regimes; although the outcome of these secondary effects depends on the margin of trade considered.