Nothing Special   »   [go: up one dir, main page]
IDEAS home Printed from https://ideas.repec.org/a/oup/wbecrv/v20y2006i2p217-240.html
   My bibliography  Save this article

Trade Preferences to Small Developing Countries and the Welfare Costs of Lost Multilateral Liberalization

Author

Listed:
  • Nuno Limão
  • Marcelo Olarreaga
Abstract
The proliferation of preferential trade liberalization over the last 20 years has raised the question of whether it slows multilateral trade liberalization. Recent theoretical and empirical evidence indicates that this is the case even for unilateral preferences that developed countries provide to small and poor countries, but there is no estimate of the resulting welfare costs. This stumbling block effect can be avoided by replacing the unilateral preferences with a fixed import subsidy, which generates a Pareto improvement. More importantly, this paper presents the first estimates of the welfare cost of preferential liberalization as a stumbling block to multilateral liberalization. Recent estimates of the stumbling block effect of preferences with data for 170 countries and more than 5,000 products are used to calculate the welfare effects of the European Union, Japan, and the United States switching from unilateral preferences for least developed countries to an import subsidy scheme. In a model with no dynamic gains to trade, the switch produces an annual net welfare gain for the 170 countries that adds about 10 percent to the estimated trade liberalization gains in the Doha Round. It also generates gains for each group: the European Union, Japan, and the United States ($2,934 million), least developed countries ($520 million), and the rest of the world ($900 million). Copyright 2006, Oxford University Press.

Suggested Citation

  • Nuno Limão & Marcelo Olarreaga, 2006. "Trade Preferences to Small Developing Countries and the Welfare Costs of Lost Multilateral Liberalization," The World Bank Economic Review, World Bank, vol. 20(2), pages 217-240.
    • Handle: RePEc:oup:wbecrv:v:20:y:2006:i:2:p:217-240
    as

    Download full text from publisher

    To our knowledge, this item is not available for download. To find whether it is available, there are three options:
    1. Check below whether another version of this item is available online.
    2. Check on the provider's web page whether it is in fact available.
    3. Perform a search for a similarly titled item that would be available.

    Other versions of this item:

    References listed on IDEAS

    as
    1. André Sapir & Richard Baldwin & Daniel Cohen & Anthony Venables, 1999. "Market integration, regionalism and the global economy," ULB Institutional Repository 2013/8074, ULB -- Universite Libre de Bruxelles.
    2. Limão, Nuno, 2005. "Preferential Trade Agreements as Stumbling Blocks for Multilateral Trade Liberalization: Evidence for the US," CEPR Discussion Papers 4884, C.E.P.R. Discussion Papers.
    3. Pravin Krishna, 1998. "Regionalism and Multilateralism: A Political Economy Approach," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 113(1), pages 227-251.
    4. Won Chang & L. Alan Winters, 2015. "How Regional Blocs Affect Excluded Countries: The Price Effects of MERCOSUR," World Scientific Book Chapters, in: Non-Tariff Barriers, Regionalism and Poverty Essays in Applied International Trade Analysis, chapter 11, pages 199-214, World Scientific Publishing Co. Pte. Ltd..
    5. Hiau Looi Kee & Alessandro Nicita & Marcelo Olarreaga, 2008. "Import Demand Elasticities and Trade Distortions," The Review of Economics and Statistics, MIT Press, vol. 90(4), pages 666-682, November.
    6. Brown, Drusilla, 1989. "A computational analysis of Japan's generalized system of preferences," Journal of Development Economics, Elsevier, vol. 30(1), pages 103-128, January.
    7. Nuno Limão, 2018. "Are Preferential Trade Agreements with Non-trade Objectives a Stumbling Block for Multilateral Liberalization?," World Scientific Book Chapters, in: Policy Externalities and International Trade Agreements, chapter 10, pages 283-317, World Scientific Publishing Co. Pte. Ltd..
    8. Kimberly Ann Elliott & Thomas O. Bayard, 1994. "Reciprocity and Retaliation in U.S. Trade Policy," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 78, January.
    9. Panagariya, Arvind & Shah, Shekhar & Mishra, Deepak, 2001. "Demand elasticities in international trade: are they really low?," Journal of Development Economics, Elsevier, vol. 64(2), pages 313-342, April.
    10. Mr. Hans P Lankes & Miss Katerina Alexandraki, 2004. "The Impact of Preference Erosionon Middle-Income Developing Countries," IMF Working Papers 2004/169, International Monetary Fund.
    11. Carlo Perroni & John Whalley, 2000. "The new regionalism: trade liberalization or insurance?," Canadian Journal of Economics, Canadian Economics Association, vol. 33(1), pages 1-24, February.
    12. Kyle Bagwell & Robert W. Staiger, 1999. "Regionalism and Multilateral Tariff Co-operation," International Economic Association Series, in: John Piggott & Alan Woodland (ed.), International Trade Policy and the Pacific Rim, chapter 7, pages 157-190, Palgrave Macmillan.
    13. Christopher S Adam & Stephen A O'Connell, 2004. "Aid versus Trade Revisited: Donor and Recipient Policies in the Presence of Learning-by-Doing," Economic Journal, Royal Economic Society, vol. 114(492), pages 150-173, January.
    14. T. N. Srinivasan, 1999. "WTO and the Developing Countries," Journal of Social and Economic Development, Institute for Social and Economic Change, Bangalore, vol. 2(1), pages 6-36, January-J.
    15. Baybars Karacaovali & Nuno Limão, 2018. "The clash of liberalizations: Preferential vs. multilateral trade liberalization in the European Union," World Scientific Book Chapters, in: Policy Externalities and International Trade Agreements, chapter 14, pages 373-401, World Scientific Publishing Co. Pte. Ltd..
    16. Azam, Jean-Paul & Laffont, Jean-Jacques, 2003. "Contracting for aid," Journal of Development Economics, Elsevier, vol. 70(1), pages 25-58, February.
    17. André Sapir, 1981. "Trade benefits under the EEC generalized system of preferences," ULB Institutional Repository 2013/8290, ULB -- Universite Libre de Bruxelles.
    18. Mattoo, Aaditya & Subramanian, Arvind, 2004. "The WTO and the poorest countries: the stark reality," World Trade Review, Cambridge University Press, vol. 3(3), pages 385-407, November.
    19. Hoekman, Bernard, 2004. "Dismantling Discrimination Against Developing Countries: Access, Rules and Differential Treatment," CEPR Discussion Papers 4694, C.E.P.R. Discussion Papers.
    20. Limao, Nuno & Venables, Anthony J., 1999. "Infrastructure, geographical disadvantage, and transport costs," Policy Research Working Paper Series 2257, The World Bank.
    21. Robert W. Staiger & Kyle Bagwell, 1999. "An Economic Theory of GATT," American Economic Review, American Economic Association, vol. 89(1), pages 215-248, March.
    22. Marcelo Olarreaga & Hiau Looi Kee & Alessandro Nicita, 2004. "Estimating Import Demand and Export Supply Elasticities," Econometric Society 2004 North American Summer Meetings 368, Econometric Society.
    23. Levy, Philip I, 1997. "A Political-Economic Analysis of Free-Trade Agreements," American Economic Review, American Economic Association, vol. 87(4), pages 506-519, September.
    24. T.N. Srinivasan, 1999. "Developing Countries in the World Trading System: From GATT, 1947, to the Third Ministerial Meeting of WTO, 1999," The World Economy, Wiley Blackwell, vol. 22(8), pages 1047-1064, November.
    25. McCulloch, Rachel & Pinera, Jose, 1977. "Trade as Aid: The Political Economy of Tariff Preferences for Developing Countries," American Economic Review, American Economic Association, vol. 67(5), pages 959-967, December.
    26. Baldwin,Richard & Cohen,Daniel & Sapir,Andre & Venables,Anthony (ed.), 1999. "Market Integration, Regionalism and the Global Economy," Cambridge Books, Cambridge University Press, number 9780521645898, October.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Arne Melchior, 2006. "The Most and the Least Favoured Nations: Norway's Trade Policy in Perspective," The World Economy, Wiley Blackwell, vol. 29(10), pages 1329-1346, October.
    2. Baybars Karacaovali & Nuno Limão, 2018. "The clash of liberalizations: Preferential vs. multilateral trade liberalization in the European Union," World Scientific Book Chapters, in: Policy Externalities and International Trade Agreements, chapter 14, pages 373-401, World Scientific Publishing Co. Pte. Ltd..
    3. Joseph Francois & Bernard Hoekman & Miriam Manchin, 2006. "Preference Erosion and Multilateral Trade Liberalization," The World Bank Economic Review, World Bank, vol. 20(2), pages 197-216.
    4. Silva, Peri, 2011. "The role of importers and exporters in the determination of the U.S. tariff preferences granted to Latin America," Journal of Development Economics, Elsevier, vol. 94(2), pages 207-219, March.
    5. Karacaovali, Baybars & Limao, Nuno, 2005. "The clash of liberalizations : preferential versus multilateral trade liberalization in the European Union," Policy Research Working Paper Series 3493, The World Bank.
    6. Will Martin & Kym Anderson, 2006. "Agricultural Trade Reform and the Doha Development Agenda," World Bank Publications - Books, The World Bank Group, number 6889.
    7. Pedro J. Martinez Edo, 2011. "Reciprocal liberalization: Bilateral, plurilateral or multilateral?," STUDIES IN TRADE AND INVESTMENT, in: United Nations ESCAP (ed.), Trade beyond Doha: Prospects for Asia-Pacific Least Developed Countries, Studies in Trade and Investment 76, chapter 4, pages 60-94, United Nations Economic and Social Commission for Asia and the Pacific (ESCAP).
    8. Estevadeordal, Antoni & Shearer, Matthew & Suominen, Kati, 2011. "Regional Integration in the Americas: State of Play, Lessons, and Ways Forward," ADBI Working Papers 277, Asian Development Bank Institute.
    9. Kym Anderson, 2016. "Agricultural Trade, Policy Reforms, and Global Food Security," Palgrave Studies in Agricultural Economics and Food Policy, Palgrave Macmillan, number 978-1-137-46925-0, October.
    10. Mohamed Hedi Bchir & Stephen N. Karingi & Andrew Mold & Patrick N. Osakwe & Mustapha Sadni Jallab, 2007. "The Doha development round and Africa: partial and general equilibrium analyses of tariff preference erosion," Agricultural Economics, International Association of Agricultural Economists, vol. 37(s1), pages 287-295, December.
    11. Lawrence, Robert Z. & Rosito, Tatiana, 2006. "A New Compensation Mechanism for Preference Erosion in the Doha Round," Working Paper Series rwp06-044, Harvard University, John F. Kennedy School of Government.
    12. Bob Fisher, 2006. "Preference Erosion, Government Revenues and Non‐tariff Trade Barriers," The World Economy, Wiley Blackwell, vol. 29(10), pages 1377-1393, October.
    13. Kazi Mahmudur Rahman & Hasanuzzaman, 2008. "United Nations Conference on Trade and Development (UNCTAD) XII: Outcomes and Subsequent Priorities for Bangladesh and other LDCs," CPD Working Paper 69, Centre for Policy Dialogue (CPD).
    14. Ketterer, Tobias D. & Bernhofen, Daniel M. & Milner, Chris, 2015. "The impact of trade preferences on multilateral tariff cuts: Evidence for Japan," Journal of the Japanese and International Economies, Elsevier, vol. 38(C), pages 31-51.
    15. Hoekman. Bernard & Prowse, Susan, 2005. "Economic policy responses to preference erosion : from trade as aid toaid for trade," Policy Research Working Paper Series 3721, The World Bank.
    16. Nuno Limão, 2016. "Preferential Trade Agreements," NBER Working Papers 22138, National Bureau of Economic Research, Inc.
    17. Bernard Hoekman & Will Martin & Carlos A. Primo Braga, 2009. "Trade Preference Erosion : Measurement and Policy Response," World Bank Publications - Books, The World Bank Group, number 9437.
    18. Shearer, Matthew & Suominen, Kati & Estevadeordal, Antoni, 2009. "Multilateralising RTAs in the Americas: State of Play and Ways Forward," IDB Publications (Working Papers) 2522, Inter-American Development Bank.
    19. Bureau, Jean-Christophe & Chakir, Raja & Gallezot, Jacques, 2006. "The Utilisation of EU and US Trade Preferences for Developing Countries in the Agri-Food Sector," Working Papers 18867, TRADEAG - Agricultural Trade Agreements.
    20. Dowlah Caf, 2008. "The Generalized System of Preferences of the United States: Does It Promote Industrialization and Economic Growth in Least Developed Countries?," The Law and Development Review, De Gruyter, vol. 1(1), pages 74-97, December.
    21. Persson, Maria, 2012. "From trade preferences to trade facilitation: Taking stock of the issues," Economics - The Open-Access, Open-Assessment E-Journal (2007-2020), Kiel Institute for the World Economy (IfW Kiel), vol. 6, pages 1-33.
    22. Persson, Maria, 2013. "Trade Preferences from a Policy Perspective," Working Papers 2013:3, Lund University, Department of Economics.
    23. Lawrence, Robert Z. & Rosito, Tatiana, 2006. "A New Compensation Mechanism for Preference Erosion in the Doha Round," Working Paper Series rwp06-044, Harvard University, John F. Kennedy School of Government.
    24. Matthew Shearer & Kati Suominen & Antoni Estevadeordal, 2009. "Multilateralising RTAs in the Americas: State of Play and Ways Forward," IDB Publications (Working Papers) 9300, Inter-American Development Bank.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Nuno Limão, 2018. "Preferential Trade Agreements as Stumbling Blocks for Multilateral Trade Liberalization: Evidence for the United States," World Scientific Book Chapters, in: Policy Externalities and International Trade Agreements, chapter 13, pages 353-371, World Scientific Publishing Co. Pte. Ltd..
    2. Karacaovali, Baybars & Limao, Nuno, 2005. "The clash of liberalizations : preferential versus multilateral trade liberalization in the European Union," Policy Research Working Paper Series 3493, The World Bank.
    3. Baybars Karacaovali & Nuno Limão, 2018. "The clash of liberalizations: Preferential vs. multilateral trade liberalization in the European Union," World Scientific Book Chapters, in: Policy Externalities and International Trade Agreements, chapter 14, pages 373-401, World Scientific Publishing Co. Pte. Ltd..
    4. Nuno Limão, 2016. "Preferential Trade Agreements," NBER Working Papers 22138, National Bureau of Economic Research, Inc.
    5. Richard Baldwin, 2008. "Big-Think Regionalism: A Critical Survey," NBER Working Papers 14056, National Bureau of Economic Research, Inc.
    6. Maggi, Giovanni, 2014. "International Trade Agreements," Handbook of International Economics, in: Gopinath, G. & Helpman, . & Rogoff, K. (ed.), Handbook of International Economics, edition 1, volume 4, chapter 0, pages 317-390, Elsevier.
    7. Emanuel Ornelas, 2016. "Special and Differential Treatment for Developing Countries," CESifo Working Paper Series 5823, CESifo.
    8. Ana Mauleon & Huasheng Song & Vincent Vannetelbosch, 2010. "Networks of Free Trade Agreements among Heterogeneous Countries," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 12(3), pages 471-500, June.
    9. Bagwell, Kyle & Staiger, Robert W., 2010. "Backward stealing and forward manipulation in the WTO," Journal of International Economics, Elsevier, vol. 82(1), pages 49-62, September.
    10. Staiger, Robert & Bagwell, Kyle & Bown, Chad, 2015. "Is the WTO Passé?," CEPR Discussion Papers 10672, C.E.P.R. Discussion Papers.
    11. Bond, Eric W. & Syropoulos, Constantinos & Winters, L. Alan, 2001. "Deepening of regional integration and multilateral trade agreements," Journal of International Economics, Elsevier, vol. 53(2), pages 335-361, April.
    12. Mohammad Amin, 2004. "Time Inconsistency of Trade Policy and Multilateralism," International Trade 0402002, University Library of Munich, Germany.
    13. Ornelas, Emanuel, 2008. "Feasible multilateralism and the effects of regionalism," Journal of International Economics, Elsevier, vol. 74(1), pages 202-224, January.
    14. Emanuel Ornelas, 2012. "Preferential Trade Agreements and the Labor Market," CEP Discussion Papers dp1117, Centre for Economic Performance, LSE.
    15. Horn, Henrik & Mavroidis, Petros C., 2001. "Economic and legal aspects of the Most-Favored-Nation clause," European Journal of Political Economy, Elsevier, vol. 17(2), pages 233-279, June.
    16. Kyle Bagwell & Chad P. Bown & Robert W. Staiger, 2016. "Is the WTO Passé?," Journal of Economic Literature, American Economic Association, vol. 54(4), pages 1125-1231, December.
    17. Furusawa, Taiji & Konishi, Hideo, 2007. "Free trade networks," Journal of International Economics, Elsevier, vol. 72(2), pages 310-335, July.
    18. John Romalis, 2007. "NAFTA's and CUSFTA's Impact on International Trade," The Review of Economics and Statistics, MIT Press, vol. 89(3), pages 416-435, August.
    19. Caroline Freund, 2010. "Third‐country Effects of Regional Trade Agreements," The World Economy, Wiley Blackwell, vol. 33(11), pages 1589-1605, November.
    20. Antoni Estevadeordal & Caroline Freund & Emanuel Ornelas, 2008. "Does Regionalism Affect Trade Liberalization Toward Nonmembers?," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 123(4), pages 1531-1575.

    More about this item

    JEL classification:

    • D78 - Microeconomics - - Analysis of Collective Decision-Making - - - Positive Analysis of Policy Formulation and Implementation
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F15 - International Economics - - Trade - - - Economic Integration

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:oup:wbecrv:v:20:y:2006:i:2:p:217-240. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Oxford University Press (email available below). General contact details of provider: https://edirc.repec.org/data/wrldbus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.