Unilateral Trade Preferences and Export Growth in Developing Countries

Overview & Synopsis

In principle, trade policy can complement direct aid to help poorer countries develop, but does it work in practice? The authors evaluate to what extent product-level exports from developing countries respond positively to trade preferences unilaterally granted by the EU and the United States. Using a four-way difference-in-differences estimator that leverages the high dimensionality of the data, we find a robust response to programs that grant preferential market access. While the magnitudes of the estimated effects tend to be rather small, they are likely to underestimate the full, long-term impact. The impact is heterogeneous and stronger for goods where price competition is the most important dimension of market success, such as less complex and more upstream products. The additional exports generated by improved market access provide only limited upgrading potential for the local economies.