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Trade as Aid: The Role of the EBA-Trade Preferences Regime in the Development Strategy

This study focuses primarily on trade preferences offered by the European Union (EU) and in particular on the Everything But Arms (EBA) trade preferences regime, which is targeted exclusively on least developed countries (LDCs). Using the gravity model, an estimation of the influence of the EBA preferences on exports from the ACP LDCs to the EU-15 is presented. The model is applied to the time period 1995 to 2005 for the ACP countries’ exports to the EU-15 and estimated with the help of different econometric techniques. The core questions of the investigation are two: First, to examine the influence of the EBA preferences on the ACP LDCs’ export performance and second to compare the impact of the EBA scheme with the one of official development assistance. In addition to their separate effects the combined impact of EBA and aid flows is also analysed. The main results show a very poor performance of the EBA regime. However, the combined effect of the EBA and aid on exports is positive, indicating that the development strategy of the developed countries, in this case of the EU, needs to include both sorts of assistance, aid and trade preferences.

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Paper provided by Ibero-America Institute for Economic Research in its series Ibero America Institute for Econ. Research (IAI) Discussion Papers with number 197.

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Length: 40 pages
Date of creation: 18 Aug 2009
Date of revision:
Handle: RePEc:got:iaidps:197
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  1. Fredrik Erixon & Razeen Sally, 2006. "Trade and Aid: Countering New Millennium Collectivism," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 39(1), pages 69-77, 03.
  2. Brenton, Paul, 2003. "Integrating the least developed countries into the world trading system : the current impact of EU preferences under everything but arms," Policy Research Working Paper Series 3018, The World Bank.
  3. Suwa Eisenmann, Akiko & Verdier, Thierry, 2007. "Aid and Trade," CEPR Discussion Papers 6465, C.E.P.R. Discussion Papers.
  4. Elisa Gamberoni, 2007. "Do unilateral trade preferences help export diversification? An investigation of the impact of European unilateral trade preferences on the extensive and intensive margin of trade," IHEID Working Papers 17-2007, Economics Section, The Graduate Institute of International Studies.
  5. Sisira Jayasuriya, 2006. "Trade or Aid: Key Issues in the Debate," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 39(1), pages 60-62, 03.
  6. Egger, Peter, 2000. "A note on the proper econometric specification of the gravity equation," Economics Letters, Elsevier, vol. 66(1), pages 25-31, January.
  7. Baltagi, Badi H. & Bresson, Georges & Pirotte, Alain, 2003. "Fixed effects, random effects or Hausman-Taylor?: A pretest estimator," Economics Letters, Elsevier, vol. 79(3), pages 361-369, June.
  8. Ingo Borchert, 2009. "Trade diversion under selective preferential market access," Canadian Journal of Economics, Canadian Economics Association, vol. 42(4), pages 1390-1410, November.
  9. 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.
  10. Elhanan Helpman & Marc Melitz & Yona Rubinstein, 2007. "Estimating Trade Flows: Trading Partners and Trading Volumes," NBER Working Papers 12927, National Bureau of Economic Research, Inc.
  11. Gert-Jan M. Linders & Henri L.F. de Groot, 2006. "Estimation of the Gravity Equation in the Presence of Zero Flows," Tinbergen Institute Discussion Papers 06-072/3, Tinbergen Institute.
  12. Persson, Maria & Wilhelmsson, Fredrik, 2006. "Assessing the Effects of EU Trade Preferences for Developing Countries," Working Papers 2006:4, Lund University, Department of Economics, revised 26 Jun 2006.
  13. Cernat, Lucian & Laird, Sam & Monge-Roffarello, Luca & Turrini, Alessandro, 2003. "The EU's Everything But Arms Initiative and the Least-developed Countries," Working Paper Series UNU-WIDER Research Paper , World Institute for Development Economic Research (UNU-WIDER).
  14. Hansen, Henrik & Tarp, Finn, 1999. "Aid Effectiveness Disputed," MPRA Paper 62290, University Library of Munich, Germany.
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