Does the effect of trade preferences depend on supply-side conditions in the preference-receiving countries?

Sammanfattning: Trade preferences used as a policy tool to promote exports from developing countries has been criticized for not being effective, as the increase in the share of imports to the European Union from developing countries has been disappointing. There has also been concerns regarding the underutilization of trade preferences among least developed countries. Both these arguments have led many to believe that trade preferences do not work. The aim of this paper is to examine if the effects of trade preferences depend on underlying conditions in the preference-receiving countries. I will estimate the effect of trade preferences and further the effect of various geographical and supply-side constraints on the least developed countries’ exports to the European Union. In addition to their separate effects the combined impact of trade preferences and the constraints will be estimated to see if the effects of trade preferences varies depending on the countries’ underlying conditions. An augmented gravity model is estimated for exports from all least developed countries to the EU-15 over the period 1997-2007 using a fixed effects Poisson Pseudo-Maximum-Likelihood model.