Trade Liberalization and the Least Developed Countries: Modeling the EU’s Everything But Arms Initiative

This study attempts to answer two key questions: what will be the likely impact of the EU’s Everything But Arms (EBA) proposal, and, what would be the impact if the United States also were to implement a similar proposal? Using the GTAP model, the preliminary results in this paper show if only the EU’s EBA proposal were implemented, then welfare in the least developed countries (LDCs) would increase by $2.5 billion (0.53 percent of their GDP), exports would grow by 3 percent, and GDP would grow by 2.3 percent. If the United States and the EU both implemented similar programs, then LDC welfare would increase by $3.1 billion (0.66 percent of GDP), exports would increase by 3.7 percent and total GDP growth by 2.9 percent. Another version of this scenario assumes that LDCs lack the supply capacity to exploit the new trade opportunities. In this case, LDC welfare increases by $0.9 billion (0.2 percent of GDP), exports grow by 4.1 percent, and GDP grows at 2.3 percent. The impact of this last scenario still may be overstated, given that trade preferences are not fully accounted for in the GTAP tariff database. Overall, the results suggest that improving market access for the LDCs could help raise per capita incomes above trend projections, but the gains are modest.