The Perversity of Preferences: The Generalized System of Preferences and Developing Country Trade Policies, 1976-2000

33 Pages Posted: 20 Apr 2016

See all articles by Caglar Ozden

Caglar Ozden

World Bank - Research Department

Eric Reinhardt

Emory University - Department of Political Science

Date Written: January 2003

Abstract

Industrial countries maintain special tariff preferences, namely the Generalized System of Preferences (GSP), for imports from 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? Ozden and Reinhardt 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.

This paper - a product of Trade, Development Research Group - is part of a arger effort in the group to study global trade regimes.

Suggested Citation

Özden, Çaglar and Reinhardt, Eric, The Perversity of Preferences: The Generalized System of Preferences and Developing Country Trade Policies, 1976-2000 (January 2003). World Bank Policy Research Working Paper No. 2955. Available at SSRN: https://ssrn.com/abstract=636317

Çaglar Özden (Contact Author)

World Bank - Research Department ( email )

1818 H Street, N.W.
Washington, DC 20433
United States

HOME PAGE: http://econ.worldbank.org/staff/cozden

Eric Reinhardt

Emory University - Department of Political Science ( email )

Atlanta, GA 30322
United States

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