T he P erversity ofP ref
erences:G SP and Developing
Country T rad e P olic ies,19 76-2 0 0 0 ¤
C
»aglar OÄ z d enyand E ric R einhard tz
Feb ruary 15,2 0 0 2
A bstract
D eveloped countries maintain special tari® preferences, namely the G eneralized
System ofP references (G SP ), forimports from developing countries. Critics have
highlighted the underachieving nature ofsuch preferences, but developing countries
continuetoplaceG SP attheheartoftheiragendainmultilateralnegotiations. W hat
e®ectdosuch preferences have on a recipient's own trade policies? W e develop and
testasimpletheoreticalmodelofasmallcountry's tradepolicychoice,usingadataset
of1 54 developingcountries from 1 976 through 20 0 0 . W e¯nd thatcountries removed
from G SP adoptmoreliberaltradepolicies thanthoseremainingeligible. T heresults,
corrected forendogeneity and robusttonumerous alternative measures oftrade policy,suggestthatdevelopingcountries may be bestserved by fullintegration intothe
reciprocity-based world trade regime ratherthan continued G SP -style specialpreferences.
JEL Classi¯cation:F1 3,F1 4,D 72,D 78,O 1 9.
\[S]pec ialand d i®erentialtreatm ent [is] a Faustianb argain." | W orld B ank
[1987,167]
¤
W ewouldliketothankCarolineFreund,ourdiscussantattheA EA meetings,JagdishB hagwati,O wen
B eelders,P ravinKrishna,R odL udema,JoyM azumdar,JerryT hursby,ChristopherZ ornforcomments and
suggestions. FranciscoP arodi provided research assistance. T his research was partiallyfunded byEmory
U niversity's InstituteforComparativeand InternationalStudies.
y
Corresponding author.D eptofEconomics, Emory U niversity, A tlanta, G A 30 322-2240 .E-mail: cozden@ emory.
edu.P hone:40 4-727-0 355.Fax:40 4-727-4639.
z
D ept of P olitical Science, Emory U niversity, A tlanta, G A 30 322.Email: erein@ emory.
edu. W eb:
http://userwww.
service.
emory.
edu/~erein/.
1
1
In
trod uc tion
T he U nited Nations[2 0 0 1] d ec larationthat \increased trad e isessential" f
or the w orld 's
poor c ountries\to reap the potentialb ene¯tsofglob aliz ation"isa c om m only shared view .
T hisprinciple isenshrined inthe approac h ind ustrializ ed c ountriesand the international
institutionstake tow ard sd evelopingc ountries.Y et there isa lively politic aland theoretic al
d eb ate onhow b est to ac c om plish thisend .T he prevailingapproac h,know nas\spec ialand
d i®erentialtreatment",grantsc ertainprod uc tsf
rom d evelopingc ountriespref
erentialac c ess
to ind ustrialized c ountries'm arketsw ithout rec iproc allib eraliz ationinturn. T he G eneralized System ofP ref
erences(G SP ) isthe lead inginstrum ent am ongsuch nonrec iproc altrad e
pref
erences. Ad voc atesc ontend that G SP should \increase the export earnings,..
.prom ote
the ind ustrialization, and .
.. ac c elerate the ec onom ic grow th" (G AT T [19 72 ]) ofrec ipient
c ountries. E vennow ,31 yearsaf
ter G eneralAgreem ent onT ari®sand T rad e (G AT T ) m em b ers¯rst authorized G SP asa \tem porary" m easure, it rem ains\highly popular" am ong
d evelopingc ountry b ene¯c iaries(J ac kson[19 97]). Strengtheningpref
erentialm arket ac c ess
w ithout rec iproc alob ligations is the c enterpiec e ofthe d eveloping w orld 's agend a inthe
c urrent \Development R ound "ofmultilateraltrad e negotiations(W T O [1999 ,2 0 0 0 ,2 0 0 1a,
2 0 0 1b ]).
For c ritic s,how ever,nonrec iproc alpref
erenceslike G SP are a \Faustianb argain"(W orld
B ank[19 87]).Asnum erousempiric alstud ieshave d em onstrated ,protec tionist politic alec onomy f
orc esinad vanced ind ustrialstatesseverely restric t G SP b ene¯ts. For instance, such
spec ialc oncessionsare typic ally revoked w henthey ac tually start to b oost the rec ipients'
exportsasshow ninOÄ z d enand R einhard t [2 0 0 2 ]. T he prob lem isthat nonrec iproc alpref
erenceslike G SP lie outsid e the purview ofthe b ind ing G AT T legalsystem , so they c an
b e unilaterally m od i¯ed or c ancelled b y d onor c ountriesat any tim e. Hence, c ritic sad voc ate turning d eveloping c ountriesinto regular partic ipantsw ho sw ap trad e c oncessionsf
or
rec iproc almarket ac c ess(W halley [19 90 ]; K rueger [1999 ]).
T he theoretic alliterature d oesnot provid e answ ersto thispolic y d eb ate.Startingw ith
the pioneering w ork ofJ ohnson[1953-4 ], the literature rec ogniz esthe e± c iency increasing
propertiesoftrad e negotiations, espec ially, inthe presence ofterm s-of
-trad e externalities.
B agw elland Staiger [1999 ] show that rec iproc allib eralizationenab lestrad ing partnersto
internaliz e these externalitiesand reach P areto superior outc om esc om pared to protec tionist polic ies. O nthe other hand , K rishna and M itra [2 0 0 0 ] and Coate and Lud em a [2 0 0 1]
c onstruc t styliz ed politic al-ec onomy m od elsthat c om pare the e®ec tsofprotec tionism and
unilaterallib eraliz ation. T hey show that the latter m ay ind uc e the lib eralizationoftrad e
polic iesofa smalld evelopingc ountryund er c ertainc ond itions.T hus,although trad e lib eralizationisone ofthe m ost strongly ad voc ated d evelopm ent polic ies,there isno agreem ent on
w hether rec iproc alor unilaterallib eralizationb y the d eveloped c ountriesw ould b est ind uc e
suc h b ehavior amongd evelopingc ountries.
T hispaper askshow nonrec iproc alpref
erencessuch asG SP a®ec t the trad e polic iesof
b ene¯c iaryc ountries.T he answ er isim portant f
or b oth the polic yand the theoretic ald eb ate.
2
Inpartic ular, w e argue that nonrec iproc alpref
erenceshave the perverse e®ec t ofd elaying
trad e lib eralizationb y rec ipients.T hat is,d evelopingc ountriesw ithd raw nf
rom G SP sub sequentlylow er their trad e b arriersmore thanc ountriesrem ainingeligib le f
or such pref
erences.
T he reasonissim ple.G overnm entsset trad e b arriersw hile b alancingpolitic alsupport f
rom
import-c om petingand export sec tors.G SP shif
tsthe b alance to the im port-c om petingsec tor. AsHud ec [1987] ob served , \the non-rec iproc ity d oc trine tend sto rem ove the m ajor
incentive that [d evelopingc ountry] export ind ustrieshave..
.f
or opposingprotec tionist trad e
polic iesat hom e.
..
instead oftryingto enlist the support ofthe export sec tor f
or lib eraltrad e
polic y." Furthermore,ifthere isa threat ofrem ovalf
rom the G SP program w henitsexports
increase signi¯c antly, thenthe rec ipient hasthe perverse incentive to im plem ent evenm ore
protec tionist polic iesto lim it itsexportsand avoid suc h outc om es. O nthe other hand , if
G SP isw ithd raw nand ac c essto the export m arket b ec om esc ond itionalonitsow ntrad e
polic ythrough the rec iproc ityrule,the rec ipient governm ent'soptim alim port tari® d ec lines.
W e d evelop thisargum ent usinga sim ple tw o-sec tor generalequilib rium m od elofa sm all
c ountry w here the optimaltrad e polic y m ay b e in°uenced b y politic alec onomy m otivations.
T hispaper'sc hiefc ontrib utionis,how ever,em piric al.W e provid e the ¯rst extensive evid ence
onthe e®ec ts ofthe G SP program onb ene¯c iaries' ow ntrad e polic ies. Spec i¯c ally, w e
test the e®ec tsofG SP removalonb ene¯c iaries' trad e polic iesusing a d ataset ofannual
ob servations of154 d eveloping c ountries since the U nited States started the program in
19 76. W e d em onstrate that c ountriesd ropped f
rom G SP sub sequently ad opt low er trad e
b arriersthanthose rem ainingeligib le f
or nonrec iproc al(asopposed to rec iproc al) pref
erences.
T hese ¯nd ingsc ontrolf
or incom e, m arket siz e, geography, grow th, and other f
ac tors; they
are rob ust to ¯ve d i®erent m easuresoftrad e b arriers; and they hold w henc orrec ting f
or
possib le end ogeneity ofthe U S G SP program .
W ritingb ef
ore they w ere im plem ented ,Harry J ohnsonargued that nonrec iproc alpref
erencesw ould f
ailifd evelopingc ountriesd id not c ease im port sub stitutionprac tic esthat c reate
\c ost d isad vantages.
..
f
requently..
.f
ar greater thanthe c om petitive ad vantage that c ould b e
c onf
erred b y pref
erencesf
rom the d eveloped c ountries" (J ohnson[1967]). W e go one step
f
urther,inc laim ingthat nonrec iproc alpref
erencesac tuallyd elayremovalofthe verypolic ies
J ohnsonsaid w ould m ake G SP ine®ec tive. T o the extent that G SP 'sperverse e®ec tsare
m agni¯ed b y d onors' protec tionism , our ¯nd ingssupport c ritic sw ho argue against unilateralm od i¯c ationofG SP c omm itments. Ifincreasingtrad e isind eed a key to d evelopm ent
and grow th, thend eveloping c ountriesw ould b e b etter served b y ab and oning reliance on
nonrec iproc alpref
erencesaltogether, b ec om ing m emb ersw ith f
ullresponsib ilitiesand thus
rightsinthe w orld trad ingregim e. W e ac c ord inglyc onclud e,w ith R oessler [199 8],that \the
c ause ofd evelopment w asm anif
estly not served b y releasingd evelopingc ountriesf
rom their
G AT T ob ligations."
O ur resultshave f
arther reac hingim plic ations,espec ially onthe f
uture ofthe W T O and
the glob altrad ingregim e.R ec ent d ec ad esw itnessed the prolif
erationofd isc rim inatory and
non-rec iproc alprac tic esthat push b oth the letter and the spirit ofthe G AT T rulesto their
lim its. T here isno d oub t that non-d isc rim inationand rec iproc ity principlesofthe G AT T
3
c ontrib uted signi¯c antly to the suc c essofthe negotiationround s(J ac kson[19 97]). Ifthe
W T O isto c ontinue asthe b asisoff
uture lib eralizatione®orts, it isnec essary to analyze
the e®ec tsofprogram s suc h as the G SP very c aref
ully. And as our paper show s, these
program sd am age the trad e lib eraliz atione®ortsintw o d istinct w ays. F irst, they lead to
m ore protec tionism among rec ipient c ountries. Sec ond , and m ore im portantly, d eveloping
c ountrieshave no avenuesto protec t their rightsasthe d onor c ountrieschange these program s
since these polic iesare outsid e the W T O jurisd ic tion.
T he next sec tionoutlinesthe m ainf
eaturesofthe G SP program and the literature survey.
T henw e provid e a b riefm od elthat lead sto the c onjec turestested inthe em piric alsec tion.
T he d ata sec tionisf
ollow ed b y the d esc riptionofthe ec onom etric m od el.Next w e d isc uss
the empiric alresultsand present variousextensions.Conclusionsf
ollow .
2
G SP B asic s
T he G eneralized System ofP ref
erencesisa regim e oftrad e pref
erencesgivenb y the d eveloped w orld to d evelopingc ountriesenm asse ona nonrec iproc alb asis, i.e.
, w ithout m arket
ac c essc oncessions b y G SP b ene¯c iaries inreturn. It w as ¯rst proposed b y the U nited
NationsConf
erence onT rad e and Developm ent (U NCT AD) inthe early 1960 sd uring the
K enned y R ound negotiationsasa toolto prom ote ec onom ic grow th ind evelopingc ountries
and to encourage their partic ipationinthe G AT T .1 G SP provid esb etter-than-M F N (m ost
f
avored nation) treatm ent to im portsofa w id e range ofprod uc tsf
rom qualif
ying d eveloping c ountries. T he U nited States' G SP program , f
or instance, setsa z ero tari® f
or 64 0 9
G SP -eligib le artic les(out of15,4 67totaltari® lines) f
rom b ene¯c iary states(U SIT C [2 0 0 2 ]),
w hereasid entic alprod uc tsim ported f
rom d eveloped c ountriesf
ac e higher,M F N,tari® rates.
G SP inherently c lashesw ith tw o c ritic alprinciplesat the heart ofthe glob altrad e regim e
(Hud ec [1987]). T he ¯rst isrec iproc ity, w id ely argued to b e the strategic b asisf
or states
to overc om e the P risoner'sDilem m a ofrepeated trad e w ars(J ackson[19 97]). T he sec ond
isnond isc rim ination, encod ed inArtic le I ofthe 194 7 G eneralAgreem ent onT ari®sand
T rad e. R ec ogniz ingthese inconsistencies,G AT T m emb ersapproved spec ialw aiversf
or G SP
program s,tem porarilyin19 71,and perm anentlyinthe 1979 \E nab lingClause"ofthe T okyo
R ound agreem ents,w hic h ad visesthat trad e pref
erencesf
or d evelopingc ountriesshould b e
nonrec iproc al(not requiring c oncessionsb y LDCsinexchange) asw ellasgeneraliz ed and
nond isc riminatory (applic ab le to alld evelopingc ountriesequally).
Asm any ob servershave noted , how ever, the E nab ling Clause lac kse®ec tive guid elines
onhow G SP should b e im plem ented . Donor c ountriesare thusf
ree to d esigntheir pref
1
T he U S also administers the Caribbean B asin Initiative, the A ndean Community preference, and a
even more preferentialsystem in favorof\ leastdeveloped countries,"asubsetofthe poorestG SP -eligible
states;butG SP in20 0 0 coveredabout75 percentofallsuchU S preferentialimports. T heEuropeanU nion
maintains the L om¶
e Convention, a better-than-G SP scheme forformercolonies in A frica, the Caribbean,
and theP aci¯c.
4
erence sc hemes\asthey see ¯t" (G AO [1994 ]). E ach d eveloped state m aintainsitsow n
G SP -equivalent program w ith d i®erent prod uc t c overage and f
eatures(e.g.,upper lim itson
pref
erence-eligib le exports). Counting the E uropeanU nion'sasone schem e, there are 15
d i®erent G SP program stod ay. Ind eed , evenw hich c ountriesc ount as\d eveloping" isup
to the d onor state to d ec id e. T he E nab lingClause d oesnot estab lish a legalob ligationf
or
d eveloped statesto give trad e pref
erencesto d evelopingc ountries; it issim ply \perm issive"
(Hud ec [1987], J ac kson[199 7]). Developing c ountriesad versely a®ec ted b y d isc rim inatory
ac tions f
rom G SP d onor states(f
or instance, through rem ovalofa prod uc t or anentire
c ountry f
rom G SP eligib ility,or givingad d itionalpref
erencesto selec t b ene¯c iaries) have no
rec ourse availab le to them ininternationallaw .2 Ine®ec t, asR oessler [1998] hasw ritten,
G SP \eliminated the rule oflaw innorth-south trad e relations" (see also K rueger [199 5]).
T hisisa prob lem b ec ause, d ue to their lac k ofm arket pow er, m ost d eveloping c ountries
d epend c ritic ally onw hat f
orc e there isininternationallaw to ind uc e d eveloped statesto
c om ply w ith their treaty c om m itm ents.3 U nd er G SP ,insharp c ontrast to rec iproc alG AT T
trad e c oncessions,\he w ho giveth m ay taketh aw ay"just asf
reely.
Consid er the im plem entationofG SP b y the U nited States, the last d eveloped state to
enac t suc h pref
erences(takinge®ec t inJ anuary 1976). T he program allow sd uty-f
ree entry
f
or a w id e range ofprod uc tsf
rom eligib le c ountries, notab ly exc lud ing \sensitive" good s
like textilesand f
ootw ear. T he authoriz ing legislation, the 1974 T rad e Ac t, enab lesthe
P resid ent to c onf
er G SP eligib ilityonanyc ountryexc ept those w hich (a) harb or international
terrorists, (b ) nationaliz e Am eric anproperty w ithout c om pensation, (c ) are a m emb er ofa
c om mod ityexport c arteljud ged to c ause \seriousd isruptionofthe w orld ec onomy,"or (d ) are
Communist (exc ept those Com munist statesw ith perm anent norm altrad ingstatusrights).
T he law stipulatesc riteria the P resid ent m ay use inm aking c ountry eligib ility d ec isions,
suc h as(a) levelofec onom ic d evelopm ent,(b ) w hether the state is\takingstepsto protec t
internationalrec ognized w orker rights," and (c ) w hether other d eveloped statesgive trad e
pref
erencesto the c ountryinquestion(U ST R [199 9]). T he P resid ent c analso rem ove spec i¯c
prod uc tsf
rom eligib ilityifexportsto the U S exc eed a c ertain\c om petitive need lim it,"w hich
isnow $ 10 0 m illionper tari® line,per year,per c ountry. How ever,interpretingthese c riteria
and d ec id ingw hento applythem liesw ithinthe P resid ent'sd isc retion,thusthe d ec isionsare
politic ally d riven. Inprac tic e, anAssistant U nited StatesT rad e R epresentative chairsan
interagency review c om mittee w hic h requestspetitionsf
rom interested parties(the c ountry
b eing review ed , im port-c ompeting U S ¯rm sand relevant U S lab or unions, and som etim es
U S intellec tualproperty groups or hum anrights/environm entalad voc ates) inanannual
2
H udec[1 987,1 36]emphasizes thatG SP turned developingcountries into\ non-payingparticipants who
had losttheirstanding to enforce legalclaims" (see G A T T [1 988, 6]
). A few developing countries have
nonetheless ¯ledG A T T /W T O legalcomplaints againstdiscriminatoryG SP policies,butineverycasethese
havebeenunsuccessfulduetoinsu±cientlegalmerits. M ostrecently,B razilandseparately,T hailand,Costa
R ica,and G uatemala,have¯led versus the European U nion'
s discriminatorysystem ofspecialpreferences.
3
Indeed, H udec [1 987, 1 35-1 36]argues thatG SP increases the responsiveness ofdonorgovernments to
protectionistpressures bysideliningexporters (apotentialcounterbalance)and byremovinglegaldiscipline
on theirpolicies vis-¶
a-vis developingcountries (see alsoH oekman and Kostecki [20 0 1 ,390 ]).
5
review ofc ountriesand prod uc tsw hose eligib ility hasb eend isputed . T hisproc essresults
inthe removalofa numb er ofprod uc tsf
rom eligib ility each year. Inad d ition, out ofthe
156 ind epend ent c ountriesthat have b eeneligib le f
or the U S G SP program at som e point
since 1976, 4 2 have b eend ropped : e.g., Singapore, Hong K ong, T aiw an, K orea, M alaysia,
M exic o, and B otsw ana (OÄ z d enand R einhard t [2 0 0 2 ]). B eing d ropped f
rom the program
isof
tenc alled \grad uation," b ec ause inm any (b ut not all) c ases the stated rationale is
that the c ountry'sper c apita incom e issu± c iently high. B raz il, Ind ia, R ussia, Ind onesia,
T urkey, South Af
ric a, and T hailand lead the list ofstatesw hic h rem aineligib le f
or the U S
4
G SP program. B ec ause G SP d ec isionsc anb e m ad e unilaterally, im port-c om petinglob b y
groupshave e®ec tively m ad e G SP the last b astionoftruly unregulated protec tionism inthe
U nited States(Hud ec [1987]).
Stud iesofG SP o®er severalc omm onc ritic ism s. F irst, G SP program s| and not just
that ofthe U nited States | f
ailto c over prod uc ts inw hic h b ene¯c iary states have the
greatest c omparative ad vantage, like textiles (W T O [2 0 0 0 ], U NCT AD [199 9, 2 0 0 1], R ay
[1987], Devault [1996]). In2 0 0 0 , f
or instance, just 4 7perc ent ofthe $ 175.6 b illionofU S
importsf
rom G SP b ene¯c iariesw ere intari® lineslisted und er the program (U SIT C [2 0 0 2 ]).
Sec ond , b y invoc ationand evenm ore b y antic ipation, the export c eilingsonG SP prod uc t
eligib ilityare of
tenb ind ing(M ac P hee and R osenb aum [1989 ],Hoekm anand K ostec ki[2 0 0 1],
F inger and W inters[199 8]). T hird , c om plexity ofthe system (espec ially itsrulesoforigin
paperw ork) and tec hnic alincapac ity ofd evelopingc ountry exportersinhib it f
ulluse ofG SP
pref
erencesevenw heneligib ility isnot a prob lem (U NCT AD [199 9, 2 0 0 1]). T hese latter
tw o reasons explainw hy, againf
or the U S in2 0 0 0 , only 19 perc ent ofthe $ 82 .2 b illion
ofexportsf
rom b ene¯c iariesofG SP -listed prod uc ts ac tually entered d uty-f
ree und er G SP
(U SIT C [2 0 0 2 ]). Fourth, asClark and Zarrilli [199 2 ] d em onstrate em piric ally, G SP d onors
d isproportionately sub stitute non-tari® f
or tari® protec tiononG SP -eligib le prod uc ts. Not
surprisingly,the universalc onclusionofnum erousem piric alstud iesisthat G SP hasrad ic ally
und erperf
orm ed ,yield ingat b est a \mod est"increase inim portsf
rom b ene¯c iarystates,w ith
some ofthose gainsd ue merely to trad e d iversion(M ac P hee and O guled o [19 91]; B row n
[1¼9 87, 1989]; B ald w inand M urray [19 77]; G rossm an[1982 ]; Sapir and Lund b erg [1984 ]).
T o quote W halley [199 0 ],\Availab le quantitative stud ies..
.seem to point to the c onclusion
that spec ialand d i®erentialtreatment hashad only a m arginale®ec t onc ountry ec onom ic
perf
orm ance, espec ially through G SP .
" F if
th, evenw here they m ight b e signi¯c ant, G SP
b ene¯tsare highly c oncentrated : m ost pref
erentialim portsc om e f
rom a sm allhand f
ulof
d evelopingc ountries(e.
g.
,U NCT AD [1999 ]). For years,these w ere Singapore,HongK ong,
T aiw an, and K orea; b ut evenin2 0 0 0 just 5 (12 ) c ountriesac c ounted f
or 55 (80 ) perc ent of
U S G SP im ports(U SIT C [2 0 0 2 ]).
Surprisingly, no stud ieshave em piric ally exam ined how nonrec iproc altrad e pref
erences
a®ec t a rec ipient'sow ntrad e polic y, quantitatively or evenanec d otally. So f
ar thissub jec t hasb eena m atter ofc onjec ture. For exam ple,Hud ec [19 87] arguesthat, b y removing
\externallegalc onstraints,"G SP und erc utsthe ab ility ofa d evelopingc ountry lead er to tie
4
Somedropped countries were subsequentlyreinstated with G SP eligibility.
6
hishand sw henf
ac ingprotec tionist pressures,even\m akingthingsw orse b y givinggreater
legitimac y to c laim sf
or trad e protec tion." R oessler [19 98]som ew hat m ore c ynic ally agrees,
c laim ing that G SP \provid ed d eveloping c ountriesw ith a justi¯c ationf
or ref
using to m ake
m arket-ac c essc om mitments." F inger and W inters[19 98]likew ise ob serve that \the w ish to
m aintainpref
erencesc ould und erm ine d eveloping c ountries' w illingnessto invest inround s
ofnegotiated trad e lib eraliz ation" (see also Now z ad [19 78]; M ichalopoulos[19 99 ] and CongressionalR esearc h Servic e [199 7]).
T he theoretic alw orkonthe G AT T rulesand espec iallyrec iproc ityrec ogniz esitse± c iency
increasingpropertiesinthe presence ofterm s-of
-trad e externalities.T he generalassum ption
isthat the c ountriesthat are engaged intrad e negotiationsare large enough so that their
trad e polic iesc anin°uence w orld pric esand a tari® im posesa negative externality onthe
trad ing partners(J ohnson[1953-4 ]).W hentw o c ountriesim pose their unilaterally optim al
tari®s,theyend up inanine± c ient P risoners'Dilem m a outc om e.B agw elland Staiger [19 99]
c om pare this unilaterally protec tionist polic ies to rec iproc allib eraliz ationand show that
rec iproc ity rule enab lesthe trad ingpartnersto internaliz e these term s-of
-trad e externalities
and reac h a P areto Superior outc om e.A sec ond set ofpapersexploresthe e®ec t ofa large
c ountry'sb ehavior ona smallc ountry'strad e polic y. K rishna and M itra [2 0 0 0 ] and Coate
and Lud em a [2 0 0 1] explore the c ond itionsund er w hich unilaterallib eraliz ationb y a large
c ountryc anc ause the sm allc ountry to lib eralize asw ell.T hey em phasize politic alec onomy
m ec hanism sinw hic h unilaterallib eraliz ationb y a large c ountry m od i¯esthe lob b yinggam e
insid e the smaller c ountry and ind uc eslib eralization.
Anim portant d istinctionb etw eenthese papersand B agw elland Staiger [199 9] isthat
they c om pare unilaterallib eralizationb y a d eveloped c ountry to protec tionism w hile the
latter c om pares rec iproc allib eraliz ationto protec tionism . T o evaluate the e®ec tsofthe
G SP , w e need to c om pare rec iproc aland unilaterallib eraliz ationb y d eveloped c ountries.
O ur resultsshow that uncond itional,non-rec iproc allib eraliz ationb ya large c ountryac tually
hasa negative e®ec t onthe trad e polic iesofd eveloping c ountries. Although w e are not
d irec tly testing either ofthe ab ove theories, our resultsare m ore parallelto B agw elland
Staiger [19 99] instressing the im portance ofrec iproc allib eraliz ationthrough institutional
rules.T he legalc om m itm ent tow ard srec iproc ity b y the U S and the G AT T /W T O f
urther
c ontrib utesto lib eralizationind eveloping c ountriesasw e show that c ountriesim plem ent
m ore lib eraltrad e polic iesaf
ter they are d ropped f
rom the G SP program 5.M oreover, our
empiric alresultsshow that these patternsstay the sam e eventhough the relative b ene¯tsof
the G SP program d ec lined over the yearsasthe overallU S trad e polic yb ec am e m ore lib eral.
5
M cL aren[1 997]provides an interestingmodelhiglightingtheimportanceofcommitmenttotradeliberalization in the presence ofsunkcosts.O ne ofthe bene¯ts ofreciprocalliberalization underthe G A T T is
this commitmentvalue.
7
3 M od el
Inthissec tion,w e provid e a generalanalytic alm od elthat m otivatesthe em piric alanalysis
inthe later sec tions.W e c onsid er anim port and anexport sec tor ina sm allc ountry w hose
trad e polic iesc anonly in°uence the d om estic pric esb ut not the w orld pric es.Allvariab les
related to the import (export) sec tor are id enti¯ed b y the supersc ript m (x).T he d om estic
pric e ofthe im port good isd enoted b y p m and itsw orld pric e isp mw .Sim ilar variab les(p x
and p xw ) are d e¯ned f
or the export good .Variab le p = p m =p x (p w = p mw =p xw ) isthe relative
pric e ratio f
ac ed b y the c onsum ersand the prod uc ersinthe d om estic (w orld ) m arket.
W e assum e that the only polic y toolavailab le to the governm ent isthe tari® (or the
sub sid y) onthe im port good .T hism ight seem restric tive b ut,ingeneralequilib rium settings,
Lerner sym m etry theorem allow susto f
oc usonly onthe trad e polic y inone sec tor.F inally,
import polic iesare m ore c om moninprac tic e and there are m ore restric tionsonthe use of
export polic iesw ithinthe G AT T .W e expressthe trad e polic y param eter astw hic h isthe
non-prohib itive ad valorem tari® rate plusone inthe d om estic m arket.T hisim pliesp = tp w
since p x = p xw .W e f
urther have that d p=d t> 0 and @p w =@t= 0 since thisisa sm allc ountry.
P rod uc tionofthe import and the export good sinthisc ountry is charac terized b y a
prod uc tionpossib ilitiesf
rontier. T he d om estic pric e ratio p d eterm inesthe m arginalrate
oftransf
orm ationand the prod uc tionlevels (Q x (p) and Q m (p)) ofthe tw o good s. T he
prod uc tionpossib ilitiesf
rontier c anb e d erived f
rom a spec i¯c f
ac torsm od elinw hic h each
sec tor em ploystw o f
ac tors.O ne ofthese f
ac tors(c apital) issec tor-spec i¯c and issupplied
in¯xed quantitiesw hile the other (lab or) ism ob ile.Anincrease inthe pric e ofthe import
good (and thusanincrease inp) increasesthe d em and f
or lab or em ployed inthat sec tor
and the w age rate w hic h, inturn, d ec reasesthe pro¯t levelinthe export sec tor.T husany
polic y that increasesthe pro¯t leveland the returnto the c apitalinone sec tor d ec reasesthe
pro¯t leveland the returnonc apitalonthe other sec tor.T hisstruc ture isquite d i®erent
thanthe onesf
ound insom e papers(suc h asG rossm anand Helpm an[199 4 ]) w here lab or is
assum ed to b e inexc esssupply and to have a c onstant pric e so that there are no prod uc tion
externalitiesb etw eend i®erent sec tors6.
T he d em and f
unctionsD m (p;T ) and D x (p;T) are also d eterm ined b ythe d om estic pric e
ratio p and the overalltari® revenue T w hich isd istrib uted to the c onsum er.T ari® revenue
isa f
unctionofthe d om estic and the w orld pric esw hic h m akesd om estic d em and a f
unction
m
m
ofthese asw ell. Next w e im pose a b alanced trad e c onstraint: p w [D (p;p w ) ¡Q (p)] =
[Q m (p) ¡D m (p;p w )]. T hus, the exogenousw orld pric e p w and the tari® rate td eterm ine
the d omestic pric e levelp and this,inturn,d eterm inesthe d em and and supply levelsofb oth
export and import good sasw ellasthe tari® revenue7.
T he governm ent pref
erencesare represented through a very generalob jec tive f
unction
that d epend sonthe end ogenousd om estic and the exogenousw orld pric esasparam eters,
6
T his modelis presented in moredetailin an earlierversionofthepaper.Itis availableupon request.
P leaseseeB agwelland Staiger[1 999]foramoredetailed version and discussion ofthis setting.
7
8
f
ollow ing B agw elland Staiger [199 9]: G (p;p w ) = G (p (t;p w );p w ) T hisissom ew hat d i®erent thanthe norm inm ost papersw here the ob jec tive is a sim ple f
unctionofthe tari®
rate, b ut there isno lossofgenerality.W e im pose the restric tionthat the im proved term sof
-trad e lead s to higher w elf
are f
or the governm ent w henthe d om estic pric es are ¯xed :
@G (p;p w )=@p w < 0 8 .T hisstruc ture isquite generalasm ost m od elsoftrad e polic y f
orm a9
tion c anb e represented inthe f
orm at.
T he optim altrad e polic y t¤ isgivenb y the ¯rst ord er c ond ition:
dG dp
= 0
dp dt
(1)
W e assum e that the sec ond ord er c ond itionissatis¯ed :G pp < 0 .W e should note that the
optim alpolic y isf
ree trad e (t= 1) inm ost m od elsregard lessofthe w orld pric esisthe
government w ere to maxim iz e soc ialw elf
are.T he presence ofpositive tari®s(t> 1) im plies
that the politic alec onomy motivationsare inplac e.T he optim altrad e polic y m ight also b e
af
unctionofthe exogenousw orld pric esp w .
3.
1
T he G SP
T he G SP status granted b y the U nited States and other d eveloped c ountries allow s the
d evelopingc ountriesto export their good sto these c ountriesw ithout the regular tari® rates
c harged onother exporters. T hisspec ialtreatm ent b asic ally increasesthe pric e exporters
f
rom G SP rec ipient c ountriesrec eive f
or their prod uc tsasthe d eveloped c ountriesare b ig
enough to a®ec t the w orld pric esthrough their trad e polic ies.Inother w ord s,b einginclud ed
inthe G SP program isequivalent to anincrease inthe exogenousvariab le p x or a d ec line in
p w inour mod el.Ifw e totallyd i®erentiate the ¯rst ord er c ond ition(1),w e ob taind t¤=d p w =
¡(G pp t+ G pp w )=G pp p w or
µ ¤¶
dt
sign
= sign (G pp t+ G pp w )
d pw
W e know that G pp < 0 b ut the signofG pp w isamb iguousand , ac tually, inm ost m od els, it
ispositive.T husthe im pac t ofthe G SP (d ec line inp w ) onthe optim altrad e polic y (t¤) of
a sm allc ountry isalso amb iguousand d epend sonthe d etailsofthe m od elat hand .
A d ec line inp w (or increase inp x) isequivalent to unilaterallib eralizationb y a large
c ountry and thisisanalyz ed inthe m od els b y K rishna and M itra [2 0 0 1] and Coate and
Lud em a [2 0 0 1].T hey show that, und er c ertainassum ptionsab out the und erlying politic al
ec onomy f
ramew ork,thisc ausesthe sm allc ountry to lib eralize.O ur sim ple sc enario,onthe
other hand ,statesthat it isnot possib le to d erive unamb iguousresultsab out the im pac t of
8
9
W eshould notethatpw is theinverseoftheterms-of-trade given the waywede¯ned ourvariables.
Findlayand W ellisz [1 982]
,H illman [1 982]
,M ayer[1 984]andG rossman and H elpman [1 994]
.
9
a m ovem ent f
rom a unilaterally protec tionist regim e to a unilaterally lib eralregim e b y large
c ountries.How ever,thisisnot our m ainc oncerninthispaper asw e aim to c om pare unilateral
lib eralizationsc hem es(G SP ) to rec iproc allib eraliz ationm echanism s(G AT T /W T O ).And ,
inthisrespec t,the resultsare m ore c lear.B ef
ore w e go any f
urther,w e w ould like to explore
anim portant polic y f
eature ofthe G SP .
3.
2
R em ovalofG SP E l
igib il
ity
Amongthe m ost important f
eaturesofthe G SP program are the c riteria f
or term ination(or
w hat isref
erred to as\grad uation".
) T hisisexplic itly stated asa m ainlegalf
eaturesofthe
G SP inthe f
orm ofthe c om petitive need lim it exc lusions.Furtherm ore,a rapid increase in
the exportsofa d evelopingc ountryto the U nited Statesisshow nto b e anim portant c riterion
f
or term inationofthe G SP eligib ilityinprac tic e asw ell.(OÄ zd enand R einhard t [2 0 0 2 ]).T hus
G SP rec ipient LDCsneed to take thisad d itionalc onstraint into ac c ount w hentheyd eterm ine
their trad e polic iesifthey d o not w ant to lose their G SP status.W e c anrepresent the new
c onstraint asanupper b ound onthe export level: F (p;p w ) = F (p (t;p w );p w ) < 0 and it
implic itly d e¯nesthe tari® rate interm softhe w orld pric e ratio p w . W e assum e that an
increase intari® rate (w hile p w iskept c onstant) lead sto a d ec line inthe exports(i.e.Fp < 0
or Ft < 0 ).
W henthisc onstraint isb ind ing, the governm ent w illc hoose the m inimum tari® rate
d e¯ned b y thisc onstraint f
or a givenlevelofw orld pric es.T hisishigher thanthe tari® rate
the governm ent w ould norm ally implem ent.T husthe threat ofterm inationd ue to increased
exportslead sto more protec tionb y the rec ipient.W e f
orm ally state thisinthe f
ollow ing:
Conjec ture 1 Ifthe threat ofterminationofG SP isbind ing, thenit lead sto m ore protec tion
(higher t¤ and p) and low er exports.
3.
3 R ec iproc ity
R ec iproc ity hasalw aysb eenone ofthe m ost im portant norm sofG AT T negotiations.T he
generalprinciple ofrec iproc ity requiresc ountriesto low er their tari® ratesand other trad e
b arrierssimultaneously and rec iproc ally to b alance the tari® c oncessionso®ered b y each
m emb er.T husP areto e± c ient outc om esc anb e achieved c om pared to the ine± c ienciesof
unilateraltari®s. T he exac t m ethod ofm easuring the c oncessionsand f
ormulasf
or d eterm iningnew tari®shave c hanged f
rom one G AT T round to the next (Hoekm anand K ostec ki
[2 0 0 1]) b ut the generalprinciple hasb eenthe guid ingnorm since the ¯rst d aysofthe G AT T .
O nce a c ountry \grad uates" f
rom the G SP , it is no longer eligib le f
or the (positive)
d isc rim inatory treatment and d uty-f
ree ac c essto the Am eric anm arkets.Furtherm ore,ifthe
grad uating c ountry w antsto rec eive the M F N tari®sgranted b y the U nited Statesto its
10
other W T O partners,it hasto rec iproc ate to the \f
avor" b y low eringitsow ntari®sonthe
imports,espec ially c omingf
rom the U S.Inother w ord s,the principle ofrec iproc ity im poses
a c ond itionality onthe export pric esofthe d eveloping c ountry interm softhe d om estic
pric esofitsim ports.W e represent thisc ond itionality invery generalterm sasp x = f (p m )
w here f0 < 0 .
T hisrule impliesthat a higher d om estic tari® rate tonthe im port good slead sto low er export pric esp x and w orse-term s-of
-trad e p.U nd er the rec iproc ity rule,the ob jec tive f
unction
ofthe governm ent b ec omes
µ m
¶
p
p mw
G (p;p w ) = G
;
f (p m ) f (p m )
w here p m = tp mw . T he tari® rate isagainthe only d ec isionvariab le f
or the governm ent.
How ever,unlike the previoussec tion,the tari® rate c hosenb y the governm ent in°uencesp x
and theref
ore the d om estic pric e rationp and the term softrad e p w .T he ¯rst ord er c ond ition
ofthe ob jec tive f
unctionund er the rec iproc ity rule is
[1 ¡f0p]G p ¡f0p w G p w = 0
W e know that G p w < 0 and f0 < 0 w hich im ply G p =
f0p w
G w
1¡f0p p
> 0:
T he im portant questionisw hat happensto the equilib rium tari® rate und er the rec iproc ity rule c om pared to the G SP regim e.Inother w ord s,d o the grad uationf
rom the G SP
program and b eingf
orc ed to low er tari®sthrough rec iproc ity lead to low er equilib rium tari®
rate t? T o answ er thisquestion,let p xG SP d enote the export pric esund er the G SP program ,
¤
t¤
ib rium tari® rate und er rec iproc ity (G SP ) and p mw b e the same unR EC (t
G SP) b e the equil
d er the G SP regime and the rec iproc ity rule. Furtherm ore, suppose the tari® rate c hosen
und er the rec iproc ity rule lead sto the sam e export pric esasthe G SP regim e.Di®erently
put, the d eveloping c ountry governm ent choosestari®sso that it rec eivesthe sam e tari®s
onitsexportsasit d id und er the G SP :f (tR EC p mw ) = p xR EC = p xG SP.T heref
ore, the export
pric esp x (and hence the w orld pric esp w ) are the sam e und er the tw o regim esb ut the import
pric esp m (and theref
ore d om estic pric esp) m ight b e d i®erent d ue to d i®erent tari® rates
¤
¤
tR EC and tG SP .B ut w e have G p > 0 inequilib rium und er the rec iproc ity rule w hile G p = 0
und er G SP .T hisimpliesthat p mR EC and p R EC are low er thanp mG SP and p G SP respec tively
since G isa c oncave f
unctionofp and p x isthe sam e und er the tw o regim es.Next statem ent
sum m arizesthisresult.
Conjec ture 2 Suppose the rec iproc ityrule lead sto the sam e w orld pricesfor the export good
x (i.e.sam e tari® sfrom the U nited States) asthe G SP regim e.T hen, the equilibrium tari®
implemented und er the rec iproc ity rule islow er thanthe one im plem ented und er G SP .
T hisc onjec ture statesthat grad uationf
rom the G SP regim e and b eingpart ofthe f
orm al
G AT T negotiationsac tuallylead to lib eraliz ationoftrad e ind evelopingc ountries,eventough
11
they m ight rec eive the sam e tari®sontheir exportsto the U nited States.Inother w ord s,
rec iproc allib eraliz ationw ithinthe ac tualrulesofthe G AT T /W T O regim e lead sto m ore
lib eralizationam ong the d eveloping c ountriesc om pared to unilaterallib eraliz ationb y the
d eveloped c ountries ac c ord ing to the G SP schem e. U nd er rec iproc ity rule, low er export
pric esb ec om esaned d itionalc ost ofhigher im port tari®sf
or the d eveloping c ountry.T his
increase inthe m arginalc ost lead sto low er equilib rium levelofim port tari®s. T he next
sec tionstest thisc onjec ture empiric ally and aim to see ifgrad uationf
rom the G SP lead sto
ad optionofmore lib eraltrad e polic iesb y the LDCs.
T hisresult isf
urther strengthened ifw e ob serve that the M F N tari®sgranted to the
d eveloping c ountry und er the rec iproc ity rule c annot b e w ithd raw nand there isno threat
oflosing the M F N tari® ratesifthe export volum e to the U nited Statesgrow stoo rapid ly.
Inthe previoussec tion, w e argued that thisim plic it threat lead sto evenhigher tari®sto
b e im plem ented b y the d eveloping c ountry und er the G SP regim e.Since the threat isnot
present und er the rec iproc ity rule,the ac tuald ec line initstari® ratesare evenhigher w hen
the d evelopingc ountry grad uatesf
rom the G SP .
4
Data and Variab l
es
W e test the hypothesisf
rom the c onjec ture inthe previoussec tionthat c ountriesd ropped
f
rom the G SP program ad opt m ore lib eralim port polic iesthanthose rem ainonG SP . W e
c onstruc t a d ataset w ith one ob servationper year per ind epend ent d evelopingc ountry,f
rom
its¯rst year asa U nited StatesG SP b ene¯c iary (m inimum 1976,the start ofthe program )
through 2 0 0 0 . O ur d e¯nitionof\ind epend ent" f
ollow sthe o± c ialU S G SP m anuals(e.g.
,
10
U ST R [1999 , 19-2 0 ]). T hisyield sa totalof154 c ountriesand 32 10 c ountry-yearsinthe
panel.
R ec allthat m ost d eveloped c ountriesm aintaintheir ow nversionsofG SP . Ifour hypothesisisc orrec t,allofthese program sshould have anim pac t ond evelopingc ountry trad e
polic ies, w eighted perhapsb y the signi¯c ance ofthe ind ustrializ ed nation'sm arket f
or the
exports ofthe c ountry inquestion. How ever, w e have d ata ononly the U nited States'
G SP program. T hisisno great loss,b ec ause the overallm arginofpref
erence the U S G SP
program c onf
ersisb y m ost ac c ountsf
und am entally c om parab le to that ofthe nonrec iproc al
d evelopingc ountry pref
erencesofthe E uropeanU nionand other d eveloped c ountries(G AO
10
T he U S G SP program guidelines (whose ¯nal determination is left to the P resident)prohibit from
eligibility(a)communistcountries \ dominatedbyinternationalcommunism"and(b)countries \ partytoan
arrangement.
.
.
towithhold supplies ofvitalcommodities,"i.
e.
,O P EC members (U ST R [1 999,23]
). H ence
mostsuch states were neverG SP bene¯ciaries (untilthey experienced a regime change)and thus are not
in oursample,which only includes astate from its ¯rstyearon the G SP program. H owever,anumberof
communistregimes werenevertheless eligible forG SP atsomepoint,includingA ngola,Ethiopia,G renada,
L aos, M adagascar, M ozambique, N icaragua, R omania, and Y ugoslavia. L ikewise, Indonesia, N igeria, and
V enezuela,allO P EC members,have atsome pointbeen eligible forU S G SP. A llthese countries are thus
included inourdataset.
12
[2 0 0 1], U NCT AD [1999 ]). Furtherm ore, the U S G SP -authorizing law stipulatesthat the
P resid ent m ay b ase G SP eligib ility d ec isionson\the extent to w hich other m ajor d eveloped
c ountriesare und ertakinga c om parab le e®ort,"i.e.
,extend ingG SP pref
erencesoftheir ow n
to the c ountry inquestion(U ST R [199 9]). T hus, d i®erent G SP program sare c orrelated 11
and the m easurem ent ofG SP statushere, w hile technic ally representing the U S program
only, o®ersa reasonab le approximationofalld eveloped c ountry pref
erencesf
or d eveloping
c ountries.
4.
1
K ey Variab l
es
G SP Status. T he d ummy variab le G SP i;t is1 ifc ountry iw asa U nited StatesG SP b ene¯c iary inyear t; 0 otherw ise.12 T hisinf
orm ationw asc ollec ted f
rom U ST R [19 91] and
Fed eralR egister [various]. T he G SP d um my ad m itted ly glossesover im portant d istinctionsb etw eenc ountriesw ith w id ely-varyingam ountsofac tualU S G SP b ene¯ts. Inord er
to c apture that variation,w e also c onstruc t the variab le G SP Frac tioni;t,d e¯ned asc ountry
i'sG SP exportsto the U S (U SIT C [2 0 0 2 ]) asa perc ent ofitstotalexportsinyear t(W orld
B ank[2 0 0 1b ]). U nf
ortunately,thisvariab le isavailab le only f
or 1989-2 0 0 0 13,so w e use G SP
Frac tionf
or sensitivity testing only.T ab le 1 listsG SP statusb y year and b y c ountry (f
or
those inany ofthe analysesb elow ).
T rad e P olic y M easures. Availab le d ata onaggregate nationaltrad e protec tionare notoriouslyimperf
ec t. O ur strategyisred und ancy: ifw e ob tainsim ilar ¯nd ingsw ith eac h ofthe
severalm ost f
requently used m easuresoftrad e polic y, our inf
erencesw illb e m ore rob ust.
T he most c omm onm ethod ofmeasuring trad e polic y, surely b ec ause ofd ata availab ility
alone, isto examine not polic y b ut trad e °ow s, inthe f
orm oftrad e d ivid ed b y G DP . Ac c ord ingly,our variab le Closure i;t isc ountry i'stotalim portsover G DP inyear t,inperc ent,
sub trac ted f
rom z ero to m ake higher valuesrepresent greater assum ed trad e restric tions. Its
sample m eanis¡4 6 and it hasthe virtue ofc apturing the e®ec t ofnon-tari® asw ellas
tari® b arriers.How ever,asmany have argued (e.
g.
,Dollar and K raay [2 0 0 1] and R od r¶iguez
and R od rik [2 0 0 1]), trad e opennessre°ec tsnot just polic y b ut also geography, m arket siz e,
institutionalquality, etc .(though w e c ontrolonthe right hand sid e f
or som e ofthese f
ac tors). Am ong the m easuresw hic h re°ec t polic y m ore d irec tly, w e ad opt Dutiesi;t (d uties
asa perc ent oftotaltrad e,f
rom W orld B ank [2 0 0 1b ]) and T ari® i;t (the unw eighted average
nom inaltari®,f
rom W orld B ank[2 0 0 1a]). T hese variab lesaverage 9.4 and 2 0 .6,respec tively,
inour d ataset. R od r¶iguez and R od rik [2 0 0 1] m ake a strong c ase f
or Duties asthe b est of
11
Forinstance,theU S announcedthewithdrawalofM alaysiafrom its G SP program inO ctober1 996,and
theEuropeanU nionfollowed suitin1 997byslashingeligibilityforallofM alaysia's chiefexports (palm oil,
plastics,rubber,wood,clothing,consumerelectronics,and allagriculturalproducts),ifnotcuttingitfrom
theprogram formally.
12
T heG SP eligibilityofP akistanandA rgentinawas halvedinthelate1 990 s;wecodethis as withdrawal
ofG SP.
13
T hat is, pre-1 989 data on G SP imports by country are disaggregated by 1 0 -digit product code, by
customs entrypoint,bymonth,and availableonlyin micro¯che form.
13
animperf
ec t lot,since T ari® w eightspolic iesonsm all-volum e prod uc tslike golfputtersthe
same astari®sonautom ob iles. How ever,b ec ause the m ost protec ted ind ustrieshave f
ew er
imports(and thusf
ew er d uties), Duties und erstatesprotec tionlevels. B elow w e estim ate
separate mod elsusing eac h ofthe three asd epend ent variab le. B ec ause d ata onallthree
are m issing f
or a siz ab le portionofthe c ountry-yearsinthe overalld ataset (14 , 52 , and 74
perc ent, respec tively), the d epend ent variab le isthe greatest c onstraint onthe siz e ofthe
14
samplesused inthese regressions.
T w o ad d itional, b ut sub jec tive, m easures oftrad e b arriers o®er a usef
ulc om parison.
B oth assessthe overallrestric tivenessoftrad e polic ies, includ ing non-tari® asw ellastari®
b arriers,groupingc ountriesinto ord ered c ategories,annually b ut only f
or the last f
ew years.
T he ¯rst isthe InternationalM onetaryFund 's(IM F ) \T rad e R estric tivenessInd ex"(T R Ii;t).
It w eightsNT B smore thantari®s(IM F [1998]),usingpub lic and private inf
orm ationat the
15
IM F 'sd isposal. W ith 10 representingthe m ost protec tionist polic y (e.g.,Ind ia) and 1 the
least (e.
g.
, Hong K ong), the average f
or our d ataset is4 .6. T he sec ond isthe trad e polic y
c om ponent (O 'Drisc oll,Holm es,and O 'G rad y[2 0 0 2 ]) ofthe Heritage Found ation's\Ind exof
E c onomic Freed om "(HF i;t). T hisd raw spurelyonpub lished sourc esb ut f
ac torsinc ustom s
c orruptionasw ellasf
ormaltari®sand NT B s. It goesf
rom the m ost opensc ore of1 (e.g.
,
16
HongK ong) to 5 (e.
g.
,B anglad esh),averaging3.
8.
B ivariate Assoc iations. Ifthe hypothesisisc orrec t, thenc ountriesonG SP should b e
m ore protec tionist (w ith higher Duties, T ari® , and Closure) thanc ountriesd ropped f
rom
G SP . InF igure 1, w hic h d isplaysaverages ac rossallc ountry-yearsinthe d ataset (w ith
nonmissingd ata),onand o® G SP ,w e see thisisind eed true. T he average ex-G SP rec ipient,
c om pared to the average b ene¯c iary,hasonlyhalfthe nom inaltari® and d uties,and im ports
ab out 6 perc ent m ore ofitsG DP per year. T hisassoc iationisevid ent f
or the c ontinuous
m easure ofG SP b ene¯tsasw ell. F igure 2 d epic tsthe m ost rec ent year'svalue ofT ari®
plotted against G SP Frac tion, show ing that c ountriesw ith the greatest proportionoftheir
exportsf
allingund er the U S G SP program m aintainthe highest nom inaltari®s. O fc ourse,
these sim ple summ ariesare b y no meansd e¯nitive,since they f
ailto c ontrolf
or alternative
explanations oftrad e polic y, b ut they nonetheless ind ic ate the assoc iationofd eveloping
c ountry protec tionism w ith G SP .
4.
2
Con
trolVariab l
es
T rend . Virtually alld eveloping c ountrieshave lib eraliz ed their trad e polic iessigni¯c antly
over the c ourse ofthe past d ec ad e or tw o. Since 4 2 c ountrieshave b eend ropped f
rom the U S
14
T estifyingtotheimportanceofredundancyforthisanalysis,thethreemeasuresarenothighlycorrelated.
ForDutiesi;t and T ari®i;t,r= 0 :36 (n= 522);Dutiesi;t and Closurei;t,r= 0 :1 2 (n= 1 533);T ari®i;t and
Closurei;t,r= 0 :43 (n= 81 1 ).
15
W ethankA nneM cG uirkandD ustinSmithattheIM F's T radeP olicyD ivisionforprovidingthesedata.
16
T hese twomeasures are only moderately correlated (r= 0 :48,n= 60 2). B oth are likewise correlated
with Duties and T ari® onlymoderately(r= about0 .
6),with Closure even less (r= about0 .
1 5).
14
G SP program over time, a positive c orrelationb etw eenG SP w ithd raw aland lib eraliz ation
c ould result f
rom thissec ular trend alone. T o isolate G SP 'sim pac t f
rom the sec ular trend ,
w e includ e the variab le T rend t,i.e.
,the m eanofthe (relevant) d epend ent variab le ac rossall
17
c ountriesinthe d ataset inyear t .
Cond itionality. M any d eveloping c ountriesinthistim e period have experienced ac ute
¯nancialc rises,and ,inmost c ases,sought assistance f
rom the InternationalM onetary Fund
(IM F ) w hose c ond itionality term stypic ally includ e trad e lib eraliz ation. Com pliance w ith
IM F c ond itionality isseriously lac king onaverage (e.g.
, IM F [199 8] and G old stein[2 0 0 0 ]).
R od rik[19 94 ]sim ilarly arguesthat trad e lib eralizationinthe d evelopingw orld hasnot b een
d rivenb y pressure f
rom international¯nancialinstitutions.Nonetheless, to c ontrolf
or this
potentialc ause off
reer trad e polic ies, w e includ e the variab le IM F i;t, a d um my w hic h is1
ifanongoing IM F program isund erw ay inc ountry iinyear t(Vreeland [2 0 0 2 ])18 , and 0
otherw ise. IM F program sw ere und erw ay inab out 38 perc ent ofthe c ountry-yearsinthe
d ataset.
M arket Size. Countriesw ith larger m arketsm ay b e m ore d iversi¯ed and thushave a
sm aller proportionofG DP involved intrad e. Further,larger c ountrieshave greater m arket
pow er and thusa potentially higher optim altari®. Hence w e introd uc e a c ontrolf
or (the
naturallogof) c ountry i'sm arket siz e inyear t, LogG DP i;t (inc onstant 19 95 U S d ollars),
w hic h should a®ec t Duties,T ari® ,and Closure inline w ith c onventionalexpec tations.
Income. Incom e isone ofthe m ost im portant d eterm inantsoftrad e °ow s, ifnot trad e
polic ies.19 High income isalso a statistic ally signi¯c ant pred ic tor (though not the only one)
ofrem ovalf
rom U S G SP eligib ility (OÄ z d enand R einhard t [2 0 0 2 ]). Inord er to lim it the
potentialf
or spuriousinf
erence ab out the e®ec tsofG SP ,w e includ e LogIncom ei;t (usingper
c apita G DP inc onstant 19 95 U S d ollars) inour regressions.2 0
G eography. A c ountry'sd istance f
rom im portant suppliersand m arketsa®ec tstransport
c ostsand thustrad e levels, asgravity m od elstud ieshave show nrepeated ly (Leam er and
Levinsohn[19 95]). Inad d ition, suc h geography-ind uc ed transport c ostsm ay serve as a
sub stitute f
or polic y-c reated import b arriers. Inc ontrast to the usualpairw ise gravitym od el,
how ever,w e c ontrolf
or loc ationusinga c ountry-spec i¯c geographic alind ic ator. Spec i¯c ally,
G allup and Sac hs[1999 ] give the proportionofa c ountry'spopulationthat livesm ore than
w ithin10 0 kilometersofa c oast or navigab le river (here,Land loc ked i) | though their d ata
are not tim e-varying. T he proportionof\land loc ked " populationinthe d ataset'saverage
c ountry is0 .38.
G row th. T he b usinessc yc le isof
tensaid to a®ec t trad e polic y. P rotec tionist pressures
are of
tengreatest d uring ec onom ic d ow nturns(Dornb usc h and Frankel[1987] and R od rik
[199 5]). Y et severe rec essionsalso m ay c atalyz e ref
orm ,w hile prolonged grow th m ay retard
17
W ewould liketothankJagdish B hagwati forsuggestingtheinclusion ofthis variable.
T hanks toJim V reeland forthemostcurrentupdateofhis datasetofIM F program participation.
19
Indeed,as B aierand B ergstrand[20 0 1 ]estimate,itis byfarthemostimportantdeterminant.
20
T hesourceforG D P and percapitaG D P ¯gures is W orld B ank[20 0 1 b].
18
15
it (R od rik [199 4 ]). For that reason, w e c ontrolf
or realG DP grow th (G row thi;t) inour
analyses(W orld B ank [2 0 0 1b ]).
5 E c onom etric M od el
s
W e estimate f
our setsofregressions, c om paring c ountriesstilleligib le to those w ithd raw n
f
rom the U S G SP program (exc lud ingthose never eligib le). T he ¯rst set (m od els1,2 ,and
3) c oncernsG SP statusasa d um my variab le,thereb yperm ittinguse ofthe entire 1976-2 0 0 0
period . W e lag allexplanatory variab lesb y one year (exc ept Land loc ked ) asa ¯rst-c ut
21
m ethod ofad d ressingc oncernsab out end ogeneity.
For rob ustness, w e estim ate the sam e
m od elseparately f
or eac h ofthe three prim ary m easuresofthe d epend ent variab le. Hence,
ifiisc ountry and tthe year, and ifyi;t iseither Dutiesi;t, T ari® i;t, or Closurei;t, thenthe
ec onom etric m od elis
yi;t =
® + ¯ 1 G SP i;t¡1 + ¯ 2 T rend t¡1 + ¯ 3IM F i;t¡1 + ¯ 4 (LogG DP i;t¡1 )
+ ¯ 5 (LogIncomei;t¡1 ) + ¯ 6Land loc ked i+ ¯ 7G row thi;t¡1 + "i;t.
(2 )
Due to the c ross-sec tionaltim e-seriesnature ofthe d ata, heterosc ed astic ity and autoc orrelationare likely. A c omm onestim ationapproac h inthissetting isf
easib le generalized
least squares(G LS) w ith c ontem poraneouserror c orrelation, groupw ise heterosc ed astic ity,
and ¯rst-ord er unit-spec i¯c autoc orrelation(e.
g.
, G reene [2 0 0 0 ]). How ever, G LS assum es
w e know the true error c ovariance m atrix, the b asisofthe FG LS transf
orm ation. B ec ause
there are N £(N + 1)=2 c ontem poraneousc ovariances(w here N isthe numb er ofc ountries
inthe panel),and b ec ause unit-spec i¯c serialc orrelationd raw sonjust one c ountry'sstring
ofob servations,good estim atesofthe error c ovariance m atrixd em and m any m ore yearsper
c ountry thanc ountriesthem selves. U sing M onte Carlo simulation, B ec k and K atz [19 95]
d emonstrate,inprec isely the situationour analysisf
ac es2 2 , FG LS stand ard errorsd ram atic ally und erstate true variab ility,w hereasO LS w ith appropriately c orrec ted stand ard errors
islesse± c ient b ut c onsistent (see also G reene [2 0 0 0 ]). Hence w e estim ate equation2 w ith
O LS,reportingNew ey-W est stand ard errorsrob ust to heterosc ed astic ity and ¯rst-ord er au23
toc orrelation(e.g., G reene [2 0 0 0 ]).
R ec allthat ¯ 1 should b e positive ineac h versionof
the equation, using Duties, T ari® , and Closure. T ab le 2 d isplaysd esc riptive statistic sf
or
the regressionsam ples.
21
W esetG SP i;t¡1 = 1 where G SP i;t = 1 fort= 1 976,the¯rstyearin thedataset.
W ehavemore than ahundred cross-sections but,aftermissingdata,atbestnomore than 1 9 years per
country.
23
W e do notinclude errorcomponents. T he random e®ects assumption thatcountry-speci¯c random
errors areuncorrelatedwiththeregressors is clearlynotappropriate,giventheconcerns aboutendogeneity.
M oreover,mostvariation in thedependentvariables and in G SP is cross-sectionalratherthan longitudinal
| variation thatis atthe heartofouranalysis butwhich would be obscured bycountry-speci¯cdummies.
In model2'
s T ari® regression sample, forinstance, 55 ofthe 1 1 0 countries have 5 orfewerobservations
each. R atherthansubsumesuchcross-nationalvariationwith dummies,wecontrolforthemostimportant
22
16
5.
1
E stim ationR esul
ts
T he resultsstrongly support our hypothesisthat rem oving G SP ind uc eslib eraliz ation. In
every m od el, G SP isa statistic ally signi¯c ant d eterm inant ofprotec tion, w ith a pow erf
ul
sub stantive im pac t asw ell. T hese ¯nd ingsare rob ust to a w id e varietyofsensitivityanalyses.
T ab le 3 show sthe f
ull-sam ple O LS estim atesofthe Duties, T ari® , and Closure equations(m od els1, 2 , and 3).Allm od els¯t the d ata w ell, asevid enced b y the tab les' m od el
test statistic s. Ad justed R 2 s inthe O LS m od elslie b etw een0 :3 and 0 :4 . Diagnostic s
24
ind ic ate heterosc ed astic ity and ¯rst-ord er serialc orrelation.
Hence the m ore c onservative,heterosc ed astic - and autoc orrelation-c onsistent New ey-W est stand ard errorsare ind eed
appropriate. Correlationsamongthe ind epend ent variab lesare verylow inm ost c ases,m od erate injust a f
ew ,2 5 and never higher than0 .
5;multic ollinearity isnot a prob lem . B ec ause
the c onventionalG LS approac h ism ore e± c ient b ut,asnoted ab ove,b ec om esb iased inw id e
b ut short2 6 panelslike ours(B ec k and K atz [1995]), w e c anuse the Hausm antest (G reene
[2 0 0 0 ]) to test the appropriatenessofthe c onsistent b ut lesse± c ient estim ator,O LS. Such
testsrejec t the equivalence ofO LS and G LS c oe± c ientsw ith p < 0 :0 1 (f
or m od els1, 2 , 3,
and 7),valid atingthe use ofO LS d espite itslesser e± c iency. O fc ourse,ine± c iency sim ply
raisesthe b ar f
or our hypothesistests.
Consid er the O LS estim atesinT ab le 3. J ust asexpec ted , the c oe± c ient ofG SP is
positive and signi¯c ant f
or allthree d epend ent variab les(m od els1, 2 , and 3). R elative to
otherw ise c om parab le c ountriesd ropped f
rom G SP , those stillonG SP c ollec t f
rom 0 .
2 2 to
27
2 .55 pointsmore d utiesasa perc ent oftrad e and have f
rom 2 .19 to 7.
76 pointshigher
nom inaltari®s. T hisisroughly the d i®erence b etw eenK orea onthe eve ofG SP w ithd raw al
in1989 and K orea in199 3, a f
ew yearsaf
ter w ithd raw al, f
or b oth variab les. W henthe
averagesofthese variab lesare 8.
6and 2 0 .5,respec tively,such sub stantive e®ec tsare c learly
important. Sim ilarly,c ountriesd ropped f
rom G SP are f
rom 4 .
17to 15.34 pointsm ore open
to im ports,asa perc ent ofG DP .T akingthe low end ofthisc on¯d ence interval,had Ind ia in
2 0 0 0 hypothetic ally b eenineligib le f
or G SP , itsim portsw ould have b een2 5 perc ent larger
(i.
e.
, anincrease of$ 2 0 b illion, w ellm ore thanthe totalam ount ofU S G SP im portsf
rom
theoretically-justi¯ed cross-sectionalfactors, like market size, income, and geography, with appropriately
conservativestandard errors. W efurtherreporttherobustness ofthis modeltothe exclusionofimportant
outliercountries,like the fourEastA sian \ T igers.
" T he ¯rst-di®erence technique is often suggested as an
alternative to errorcomponents in cases like this, buthere itis inappropriate because G SP is a dummy
which veryrarelychanges (36 times outofour321 0 observations)and whose greateste®ects arefeltovera
longstretch ofsubsequentyears,notjustoneyearfollowingremoval(e.
g.
,W ooldridge[20 0 2]).
24
Speci¯cally,forO L S models 1 ,2,3,and 7,W hite'
s generaltestrejects homoscedasticity with p < 0 :0 1
in each case (G reene [20 0 0 ]). R egression ofO L S residuals "i;t on "i;t¡1 yield estimates of¯rst-orderserial
correlation ofabout½ = 0 :8,p < 0 :0 1 ,forallfourO L S models as well.
25
D ependingon the modelandsamplein question,L ogIncomei;t¡1 ,exhibits acorrelation withIM Fi;t¡1
ofabout¡0 :25,with L ogG DP i;t¡1 ofabout0 :35,and with L andlockedi ofroughly¡0 :50 .
26
W ehavethe\ G eorgeCostanza"ofdatasets,onemightsay.
27
T hisisa95 % con¯denceinterval,basedonpredictionsfrom the¯ttedmodel,asareallintervalestimates
reportedsubsequently.
17
allsuppliersthat year). W e should note that,am ongthe c ontrolvariab les,sec ular trend f
or
lib eralization,income level,are signi¯c ant inallm od elsw hile m easure ofland locked ,grow th
and totalG DP are signi¯c ant inthe c losure m od el,allw ith the expec ted signs.O nthe other
hand ,the IM F variab le isnot signi¯c ant inany ofthe m od els.
5.
2
E nd ogen
eity ofG SP
T he sec ond set ofregressionsad d ressesthe potentialf
or end ogeneity ofG SP status. T hisis
a c ritic alissue,though ind eterminate asto d irec tion.G rantingand rem ovingG SP eligib ility
is, af
ter all, a politic ald ec ision, not anautom ated one. Inpartic ular, the questionis
w hether a rec ipient's im port polic y c ond itions the U nited States rem ovald ec ision. O n
one hand , ifU S exporters (rather thanprim arily U S im port-c om peting prod uc ers) m ost
in°uence the d ec ision,thenb ene¯c iary c ountriesw ith high trad e b arriersoftheir ow nw ould
b e prime targetsf
or rem oval. T hissuggestsG SP rec ipientsm ay b e m ore,not less,opento
importsthanex-b ene¯c iaries. Ifso, the estim atesf
rom the ¯rst set ofregressionsm ay b e
c onservative. O nthe other hand , the U S m ay b e m ost likely to m aintainG SP eligib ility
f
or prec isely those c ountriesthat have f
ailed to overc om e the legac y ofim port sub stitution,
b ec ause they have prospered the least and are ingreatest apparent need off
oreignaid .
T hisimpliesG SP should b e assoc iated w ith w orse polic ies(e.
g.
, high trad e b arriers), just
asw e have proposed | b ut f
or a d i®erent reason. Iftrue, the resultsf
rom our ¯rst set of
regressionsmay overstate G SP 'se®ec t. E ither w ay, w e must explic itly ad d resspotential
end ogeneity b iasinord er to have greater c on¯d ence inthe resultsofour ¯rst set of(O LS)
regressions.
W e use aninstrumentalvariab les(IV) approac h to isolate the \treatm ent e®ec t"ofG SP
ontrad e polic y w henthe treatm ent itselfisend ogenous. T hat is,if
G SP
i;t =
° 0xi;t¡1 + ui;t
(3)
w here xisa vec tor ofinstrumentsthought to b e uncorrelated w ith " inequation(2 ),w e c an
use ¯tted valuesofG SP i;t (not G SP i;t¡1 ,since w e are c orrec tingf
or simultaneousc ausation
here) f
rom equation(3) asthe optim alinstrum ent f
or G SP i;t inequation(2 ), w ith tw ostage least squares. M od els4 ,5,and 6 separately apply thism ethod to Duties,T ari® ,and
Closure,parallelingm od els1,2 ,and 3,reportingNew ey-W est stand ard errors.
T he d ec isive issue isexogeneityofthe instrum ents. Fortunately,asOÄ z d enand R einhard t
[2 0 0 2 ] d em onstrate, there are a numb er ofgood pred ic torsofU S G SP eligib ility; m any of
these have no c onceivab le d irec t link to the d eveloping c ountry'sow ntrad e polic y. T hese
includ e (a) c apitol-to-c apitold istance f
rom c ountry ito the U nited States, inm iles; (b ) a
d um myind ic atingc ountryim aintainsa f
orm alalliance w ith the U nited States2 8 ;(c ) c ountry
28
D istanceand alliancedataarefrom theCorrelates ofW arP rojectas distributed byB ennettand Stam
[20 0 0 ]
,updated bytheauthors to20 0 0 .
18
i'sFreed om House [2 0 0 0 ]sc ore f
or c ivillib erties,d e¯ned as\the f
reed om sto d evelop view s,
institutions,and personalautonomyapart f
rom the state";(d ) the perc ent ofallonce-eligib le
d evelopingc ountriesstillonthe U S G SP program ;and (e) m ac roec onom ic c ond itionsinthe
U nited States,includ ingtrad e d e¯c it asperc ent ofG DP ,realexchange rate ind ex,U S total
trad e d ivid ed b y G DP , and unemploym ent rate (W orld B ank [2 0 0 1b ]). Allare m easured
f
or year t¡1. Distance and alliance statusa®ec t a c ountry'strad e w ith the U nited States
inpartic ular b ut not itsimport polic y overall, w hile the c ivillib ertiesm easure speaksto
w hether a c ountry is\taking stepsto a®ord internationally-ac c epted w orker rights" (like
right ofassoc iation),a statutory U S G SP c ond itionb ut not a d eterm inant ofthe d eveloping
c ountry'strad e polic y. U S mac roec onom ic c ond itionsa®ec t the pressure f
rom d om estic
import-c om peting ind ustriesto rem ove m any signi¯c ant exporting nationsf
rom G SP b ut
have little or no e®ec t onthe target c ountry's ow nim port b arriers. W e includ e these
instrum ents,inad d itionto the right-hand -sid e variab lesin2 ,inthe xvec tor inequation3.
W e start b y c on¯rm ing the need f
or IV estim ationusing David sonand M ac K innon's
[199 3] m od i¯ed Durb in-W u-Hausm antest ofthe nullhypothesisthat end ogeneity d oesnot
a®ec t the O LS estim ates, w hic h rejec ts the nullineach c ase. W e also verif
y that our
instrum entsare properlyexogenous(i.e.,not c orrelated w ith " in2 ): testsofoverid entif
ying
restric tionsinIV m od els4 , 5, 6 (and 8) allf
ailto rejec t the nullofexogeneity (David son
29
and M ac K innon[199 3]).
T ab le 4 presentsthne IV estim atesofthe Duties, T ari® and Closure equations(m od els
4 , 5 and 6). G SP 's c oe± c ient is highly statistic ally signi¯c ant and inthe hypothesized
(positive) d irec tionineac h c olumn. Apparently,G SP ism ore c ond itioned onm arket ac c ess
f
or U S exportsthanit isonpoor ec onom ic perf
orm ance,since the latter possib ility im plies
(incorrec tly) a negative c oe± c ient f
or G SP ,asnoted earlier. B ut the im portant point isthat
neither f
orm ofend ogeneity ac c ountsf
ully f
or the positive assoc iationb etw eenG SP status
and protec tionism , since that assoc iationshow sup evenw henc ontrolling f
or end ogeneity
b iasinthe IV m od els. O ne c oncernisw hy G SP 'sc oe± c ientsare so large inT ab le 4 , as
c om pared to T ab le 3(w hose regressionsuse the sam e sam ples,c ontrols,and error c orrec tion).
Lessthanperf
ec t instrum entsmay ac c ount f
or a little ofthisd i®erence, b ut F testsf
rom
the ¯rst-stage regression(ofG SP onthe instrum ents) exc eed 10 ineach c ase, allyield ing
p < 0 :0 0 1.30 T hus,b y Staiger and Stoc k's[199 7]rule ofthum b ,our instrum entshave m ore
thanad equate explanatory pow er. T he m ore likely explanationliesinthe rarity ofG SP
w ithd raw aland the resultingskew inthe d istrib utionofG SP .B ec ause ex-G SP c ountry-years
are around 8 perc ent ofeac h sam ple,the ¯rst-stage IV regressionyield s¯tted values, G dSP i;t,
w ith relatively little variation, ranging f
rom a m inim um of0 :83 to a m axim um of1:0 5 in
m od el6, f
or exam ple. T he d i®erence b etw eenm aximum and m inimum G SP i;t (i.e., 1) is
29
T hese statistics yield p = 0 :0 52, p = 0 :41 7, p = 0 :0 82, and p = 0 :31 2 for models 4, 5, 6, and 8,
respectively.
30
T he F statistics are 1 0 :0 1 , 1 1 :86, 21 :62, and 1 8:56, and the correlations ofthe ¯rst-stage regression's
¯ttedinstrumentwithobservedG SP i;t (G SP Fractioni;t inmodel8)arer= 0 :284,0 :421 ,0 :30 1 ,and0 :40 2,
inmodels 4,5,6,and 8,respectively.
19
ac c ord ingly4 .
6timeslarger thanthe sam e quantityf
or G dSP i;tinthisc ase. T he c onsequence
isthat G SP 'sc oe± c ient should b e ab out 4 .
6 tim esaslarge inm od el6 asinm od el3,w hich
isind eed true. M aking thisad justm ent ininterpretation, the im pac t ofG dSP i;t, asit goes
f
rom m inimum to maximum inm od el6, isto d ec rease im port opennessf
rom 5.
1 to 14 .7
perc ent, essentially the sam e c on¯d ence intervalasinthe O LS regression(m od el3). In
any c ase, w e c aneasily inf
er that the potentialf
or end ogeneity inno w ay d im inishesthe
estim ated im pac t ofG SP ontrad e protec tion.
5.
3 O ther M easuresofG SP an
d Non
-tari® B arriers
T he third and f
ourth set ofregressionsexam ine the im pac t ofG SP Frac tioni;t instead of
the G SP d um my.T hisisa b etter m easure ofthe G SP program ofthe U nited Statesasit
m easuresthe f
rac tionofG SP exportsofc ountry ito the U S (U SIT C [2 0 0 2 ]) asa perc ent
ofitstotalexportsinyear t.B ec ause the tim e seriesf
or Duties and T ari® are f
requently
interrupted ,w hile G SP Frac tionitselfisonly availab le f
or 4 8 perc ent ofthe ob servations,w e
restric t our attentionto the d epend ent variab le w ith the m ost nonm issingc ells,Closure. W e
use O LS and IV asab ove, sub stituting G SP Frac tionf
or G SP . Inallofthese regressions
w e expec t G SP Frac tion'sc oe± c ient to b e positive, increasing trad e b arriers. Alluse the
same set ofc ontrols,asinequation( 2 ),againlagged b y one year (exc ept Land loc ked ).
M od els7 and 8 inT ab le 5 show O LS and IV estim atesf
or the regressionofClosure
onG SP Frac tion. T he resultsf
rom the previoussec tionsstand evenifw e ad opt a m ore
nuanced m easure ofG SP b ene¯ts.T he m ore a c ountry'stotalexportsb ene¯t f
rom (and
d epend on) U nited StatesG SP d uty-f
ree status, the m ore c losed to im portsit should b e.
J ust asexpec ted ,the c oe± c ient ofG SP Frac tionispositive and signi¯c ant inb oth c olum ns.
Allothersthingsequal, inm od el7, going f
rom the 10 th to 9 0 th perc entile valuesofG SP
Frac tion(f
rom Hong K ong in199 8, w ith zero perc ent ofitsexportsf
alling und er the U S
G SP program,to Ind onesia the same year,w ith 3.8 perc ent) d ec reasespred ic ted im portsb y
2 .2 to 10 .
5 perc ent ofG DP . M oving f
rom sam ple m inimum to m aximum (Surinam e 199 4 )
d ec reases im ports b y 8.8 to 4 1.0 perc ent ofG DP . W henthe IV estim ate is interpreted
as d isc ussed ab ove, G SP 's pred ic ted sub stantive im pac t inm od el8 is c om parab le. W e
should note that the T rend variab le (m easuring glob altrad e polic y patterns) isno longer
signi¯c ant inthese regressionsw hile allofthe other variab lesm aintainthe sam e signsf
rom
the respec tive regressionsw ith the G SP d um my.
Inthe f
ourth set ofregressions, to see how our hypothesis f
ares w ith the sub jec tive
m easuresoftrad e b arriers, the IM F 'sT rad e R estric tivenessInd ex (T R Ii;t) and the trad e
c om ponent ofthe Heritage Found ation'sInd exofE c onom ic Freed om (HF i;t).T hese variab les
are espec ially valuab le asthey measure overalltrad e polic y restric tiveness,takingnon-tari®
b arriersespec ially into ac c ount.
F inally,mod els9 and 10 inT ab le 6 give estim ates(w ith heterosc ed astic -c onsistent stand ard errors) oford ered prob it regressionsofT R I and HF onG SP Frac tionf
or over 10 0
20
d eveloping c ountriesinseveralyearsinthe late 1990 s. G SP Frac tionagainhasa statistic ally signi¯c ant e®ec t, increasingprotec tionism (higher valuesofT R I and HF ). Hold ing
other variab lesat their sam ple means, w e ¯nd that m oving f
rom B razil's19 98 export d epend ence onU S G SP b ene¯ts(ab out 4 perc ent) to that ofHongK ong(z ero) increasesthe
pred ic ted P rob (T R Ii;t < 5) b y a quarter, going f
rom 0 .
39 to 0 .49 . T hisac c ord sw ith the
ob served T R I ¯guresf
or Hong K ong and B raz ilin199 8, w hic h are 1 and 5, respec tively.
T he sam e change, hold ing other variab lesat their sam ple m eansinm od el10 , yield saninc rease inthe pred ic ted P rob (HF i;t < 4 ) b y ab out half
, going f
rom 0 .28 to 0 .42 | w here
HongK ong'sand B raz il'sHF sc oresthat year are 1 and 4 .
6 Disc ussionand E xam pl
es
O ur resultsthusind ic ate quite c learly that (a) rem ainingeligib le f
or G SP m akesa c ountry
lesslikely to lib eralize itsow ntrad e polic y and (b ) the G SP \d ose" m attersasw ell, i.
e.
,
greater export d epend ence onU S G SP pref
erencesb oostsa c ountry'sresistance to glob al
lib eralizationtrend s. T hese ¯nd ingsare extrem ely rob ust. F irst, the estim atesofG SP 's
impac t onprotec tionare similar instatistic aland sub stantive signi¯c ance notw ithstand ing
the siz ab le d i®erencesamong our ¯ve m easuresoftrad e polic y. T hisistrue regard lessof
w hether the m easure used re°ec tsnon-tari® b arriersor just tari®s, w hether the m easure is
import-w eighted , w hether the m easure c onsid erstrad e °ow sor trad e polic ies, or w hether
the c od ing method issub jec tive or ob jec tive. O ur ¯nd ingsare not d rivenb y the choic e of
m easure ofthe d epend ent variab le inany w ay. Sec ond ,the resultshold ac rosstw o d i®erent
m easuresofthe ind epend ent variab le,G SP status:c ontrastsb oth b etw eenc ountriesonand
o® G SP and am ong c ountries rec eiving various d egrees ofG SP b ene¯ts equally support
the hypothesis. T hird , G SP 'se®ec t isnot anartif
ac t ofSingapore, Hong K ong, K orea,
and T aiw an, w hose legend ary outw ard -oriented trad e polic iesyield extrem e valuesofthe
d epend ent variab les, b oth b ef
ore and af
ter G SP \grad uation." Ifw e d rop those c ountries,
G SP 'sestim ated e®ec t remainspositive and signi¯c ant inallb ut the O LS Closure m od els.31
Fourth,the G SP treatm ent e®ec t hold sup ifw e c orrec t f
or the potentialend ogeneity ofU S
G SP eligib ilityd ec isions. T here islittle optionb ut to c onclud e that the evid ence isstrongly
c onsistent w ith our hypothesis.
T hese resultsare quite surprising. Af
ter all,the U S isnot the largest trad ingpartner f
or
m any ofthese d evelopingc ountries,and m ost exportsto the U S b yG SP b ene¯c iariesd o not
qualif
yf
or G SP d uty-f
ree statussince they are naturalresourc esand raw m aterials. O ther
f
ac tors, suc h asIM F c ond itionality, the overallsec ular trend tow ard lib eralizationinthe
d evelopingw orld , m ac roec onom ic perf
orm ance, or exogenouscharac teristic slike geography
and market siz e, are allgivengreater w eight inc onventionalexplanations ofd eveloping
31
Duties and T ari® are signi¯cantlyhigherforthese \ tigers"before G SP removalthan afterwards (twosample t-tests yield one-tailed p = 0 :0 4 and p = 0 :0 0 ,respectively). T heirClosure mean is likewise higher
intheG SP years than after\ graduation.
"
21
c ountries'trad e polic ies. W hat ispartic ularly strikingisthat our resultsob taind espite the
presence ofseveralpariah statesonthe list ofc ountriesrem oved f
rom the U S G SP program
| c ountrieslike E thiopia inthe 1980 s, asw ellasM yanm ar and M auritania inthe 199 0 s,
w hose import regim esverged onautarky. T hese c ountriesd rag our estim atesd ow n, and
the use ofanine± c ient estim ationm ethod leavesour estim atesrelatively im prec ise. G iven
these c onsid erations, w e have set up a hard test f
or the m od el.Y et, asw e have f
ound that
G SP ac tually m attersintrad e polic y d ec isionsofb ene¯c iary states.
Inc ase af
ter c ase, w e c ansee trad e polic y f
ollow ing the path ofG SP eligib ility and
w ithd raw alw e have mapped ab ove. Consid er (South) K orea. P rior to b eing d ropped in
19 89 , K orea had pursued a long, slow program ofim port lib eraliz ation, having c ut average
(unw eighted ) nom inaltari®sa little f
rom the 19 80 saverage of2 1 perc ent. Inthe ¯ve year
period prec ed inggrad uationf
rom G SP ,im port d utiesasa perc ent ofim portsslid d ow n1.2
pointsasa result. Inthe f
our yearsaf
ter b eing d ropped , how ever, K orea c ut the average
nom inaltari® b y 6 points(d ow nto 8.9 in19 93), so im port d utiesasa perc ent ofim ports
d ec reased muc h m ore rapid ly,b y 3.5 m ore points,reachinga low of4 .4 in199 4 . Note that
thisoc c urred inthe ab sence ofany ad d itionalmultilateraltari® c om m itm entsb y K orea,
since the U ruguay R ound w asnot im plem ented until199 5.32
Samoa o®ers another interesting illustration. From 19 93 to 199 6, w henSam oa w as
ultim ately d ropped f
rom the U S G SP program ,Sam oa'sim portsasperc ent ofG DP ac tually
f
ell16points,f
rom 75 to 59. Af
ter G SP w ithd raw al,how ever,Sam oa increased itsim ports,
up to 82 perc ent ofG DP b y 2 0 0 0 . Sim ilarly, af
ter yearsw ith a stead y average nominal
tari® of9 perc ent,Sam oa'sgovernment announced a w holesale trad e lib eralizationprogram
inearly 199 8, d esigned to c ut tari®sto z ero b y 2 0 10 (O 'Drisc oll, Holm es, and K irkpatrick
[2 0 0 1]).
M exic o,too,isrevealing. T he U S grad uated M exic o f
rom G SP in19 94 ,uponM exic o's
ac c essionto the North Am eric anFree T rad e Agreem ent (NAF T A).T hisw ould seem anexc eptionalc ase,espec iallyb ec ause M exic o inthe early1990 shad ,ac c ord ingto m ost ac c ounts,
alread y b eguna signi¯c ant program ofunilateraltrad e lib eraliz ation. How ever, M exic o's
importsasa perc ent ofG DP had not increased f
rom 1990 to 1993, and injust tw o years
af
ter leavingG SP it rose b y over a third ,f
rom 2 1.
7to 30 .
1 perc ent. And thisw asd uringthe
t̀equila c risis,' w hic h w itnessed a severe d evaluationofthe peso and thusd ow nw ard pressure onim ports. M exic o'saverage nom inaltari®,w hich had inf
ac t increased a little f
rom
19 89 to 1994 , d ropped 3.4 pointsf
rom 19 94 to 199 9, and itsd utiesasa perc ent ofim ports
d ropped to one-third ofitspreviouslevelinthisperiod asw ell. G ranted , the c atalyst f
or
thismajor im port lib eraliz ationw asthe d esire f
or export revenue inthe U S m arket; G SP
removalf
ollow ed rather thanstarted the polic yc hange. B ut thisisanexc eptionthat proves
the rule, since M exic o had not lib eralized assigni¯c antly d uring the G SP period . B y the
m id -199 0 s, M exic o had ¯nally learned the lessonthat you have to p̀ay to play' | a lesson
G SP statushad ob sc ured f
or years.
32
Koreawas alsonotamemberofatari®-cuttingregionaltrade agreementatthis time.
22
Isend ogeneityb iasresponsib le f
or the apparent assoc iationb etw eenG SP and protec tion?
W e ad d ressthisc oncernd irec tly,and the answ er isunam b iguously no. F irst,rec allthat w e
lagthe G SP variab le b y a year inthe O LS m od els,and ,b ec ause the U S G SP review proc ess
ac tually takesplac e inthe 12 monthsprior to the announcem ent, there isane®ec tive lag
ofnearly tw o years. Sec ond , asOÄ z d enand R einhard t [2 0 0 2 ] d em onstrate using a d isc rete
d urationm od eloftim e tillG SP w ithd raw alf
or allU S G SP b ene¯c iariesf
rom 19 76-2 0 0 1,
neither the state'soveralltrad e openness, itsopennessto U S exportsinpartic ular (asa
perc ent ofG DP ), nor itsd utiesasa perc ent oftrad e have any signi¯c ant e®ec t onG SP
w ithd raw ald ec isions,w henc ontrollingf
or other im portant f
ac tors. (R ather,w hat m atters
isthe volum e ofitsexportsto the U S, itsper c apita incom e, and itsc ivillib erties, plus
U S-spec i¯c mac roec onom ic c ond itions.
) Af
ter all,the G SP asapproved w ithinthe G eneral
Agreem ent onT ari®sand T rad e legalsystem isnot supposed to b e rec iproc alinnature.
T o b e sure, the U S linksother issuesto G SP statusreview s(e.
g.
, c ivillib ertiesm entioned
ab ove),b ut G SP isnot c ond itioned onrec iproc alm arket ac c essinprac tic e. Asone ob server
hasnoted , G SP statusd ec isionsare \c ontrolled essentially b y im porters" (W ilson[199 2 ]).
T hird , inany c ase, our hypothesispassesthe truest test ofthisob jec tion, inIV m od els
c ontrollingf
or end ogeneity b ias.
T he experience ofChile c omesc lose to a sm okingguninsupport ofour c laim . Chile w as
suspend ed f
rom the G SP at the b eginning of19 88 f
or violating internationally rec ognized
w orker rightsasthe P inoc het regim e w asstalling the last stage ofd em oc ratic transition
(Ad am s[19 89]). ItsG SP statusw aslater restored in1991, af
ter d em oc ratic elec tionshad
oc c urred . W hat happened to itstrad e polic y inthe interval? J ust d aysaf
ter the G SP
w ithd raw al, Chile'sF inance M inister HernanB uchi announced that the f
orm erly \sac red "
2 0 perc ent nom inaltari® w ould b e c ut to 15. He stated explic itly that the c ut aim ed to
low er the b urd ensom e im ported input c ostsf
or Chileanexporters,to c om pensate f
or the loss
ofG SP d uty-f
ree statusinthe U S m arket (Ad am s[19 89,];Frasc a [1988]). Chile c ut itstari®
another 4 points,d ow nto 11 perc ent,b y the year itsG SP eligib ility w asrestored ,b ut m ad e
no c utsf
or the rest ofthe d ec ad e (once G SP w asrestored ). Im portsasa perc ent ofG DP
w ent up f
rom the 1986-87average of2 6.7to the 19 89 -90 sc ore of31.3 (a levelChile hasnot
since reac hed evennow ), and then, uponG SP restoration, d ow nagainto 2 9 .
6f
or 19 92 -93.
T he d ec isionto d rop Chile w asessentially exogenousf
or our purposes, yet the rem ovalof
G SP increased and d etermined the tim ingofChile'strad e lib eralization,and itsrestoration
stalled that lib eraliz ationsub sequently.
7 Concl
usion
T he aim ofthispaper w asto c ontrib ute to the ongoingd eb ate onthe b est w aysto integrate
the d eveloping c ountriesinto the w orld trad ing system and to low er their trad e b arriers.
O ne ofthe d ominant view sf
avorsthe \spec ialand d i®erentialtreatm ent ofLDCs"through
program ssuc h asthe G SP .How ever, thispaper provid esstrong em piric alevid ence against
23
suc h program sand show sthat the G SP ac tually c ausesthe rec ipient c ountriesto im plem ent
m ore protec tionist polic iesthanthey norm ally m ight have d one.M ore spec i¯c ally,w e show
that c ountriesb ec om e more lib eralonce they are d ropped f
rom the G SP .O ur resultshold
regard lessofthe w ay trad e lib eraliz ationism easured and inthe presence ofm any other
explanatory variab les.
T hese ¯nd ingsare somew hat unantic ipated since the U S isnot the only trad ingpartner
f
or m ost ofthese c ountriesand the G SP program c oversa relatively sm allportionoftheir
exports.How ever our resultsind ic ate strongin°uence ofthe U S G SP program onthe overall
trad e polic iesofthe LDCs33.T hisnegative e®ec t m ight b e c aused b y severalreasons.O ne
ofthem might b e the lac koflob b yingb yexport groupsf
or lib eralization,since they f
ac e low
tari®sontheir exportsinany c ase (und er G SP );hence polic y isd eterm ined b y protec tionist
import-c om petinggroups.Another m ight b e the w ay the G SP eligib ilityisd eterm ined .T he
politic alproc esslead ingto G SP d ec isionsisheavily in°uenced b y protec tionist d om estic interest groupsinthe U S.Since `he w ho giveth m aytaketh aw ay,'the non-guaranteed nature of
G SP pref
erencespreventsthe rec ipientsf
rom f
ullyf
oc usingontheir export sec tors.Developingc ountriesinG AT T /W T O have of
tenlevied the c ritique that sec tor- and c ountry-spec i¯c
`grad uation' c riteria are \c ontrary to principlesofnon-d isc rim inationand non-rec iproc ity
that und erpinthe G SP and theref
ore aliento the originalintentionsund erlying the G SP
c oncept"(W T O [2 0 0 0 ])34 .T husthe negative e®ec tsofthe G SP should not b e just b lam ed
onthe LDCs, b ut also onthe w ay inw hich G SP isad m inistered inU S, highly exposed
asit isto unregulated trad itionalprotec tionist pressures.O ne ofthe m ainim plic ationsof
our resultsisthat partic ipatinginrec iproc altrad e agreem entsthrough f
orm alinstitutional
f
ram ew orkssuc h asthe G AT T ism ore likely to lead to lib eraliz ationb y LDCs.
Aspart ofthe b uild up to w hat m any have c alled the \Developm ent R ound ,"i.e.,W T O 's
next multilateraltrad e negotiation,m anyd evelopingc ountrieshave c ontinued to lob b yf
ellow
W T O m emb ers f
or c ontinued and evenincreased nonrec iproc altrad e pref
erences (W T O
[2 0 0 1a]),insome c asesexplic itly plead ingc essationofpressure f
or any f
urther lib eraliz ation
oftheir ow n(e.
g.
, W T O [199 9]). B ased onthe evid ence inthispaper, w e argue that the
pref
erred sc enario isone inw hic h d evelopingc ountriesgive up G SP inf
avor ofthe rec iproc ityd riventrad e regim e emb od ied inG AT T /W T O relationshipsam ongd eveloped states. T he
norm ative c riteria here isthe extent oftrad e lib eraliz ationachieved b y LDCs,ofc ourse. A
w orld inw hic h G SP isad m inistered outsid e ofthe G AT T /W T O legalstruc ture,exposingit
to protec tionist politic alec onomy d ynam ic sw ithind eveloped c ountriesisthe least id eal.
O ur results have partic ular signi¯c ance inthe c ontext ofthe ongoing d eb ate onthe
relationship b etw eentrad e opennessand grow th. T he w id ely-ac c epted notionthat trad e
opennessprom otesgrow th (E d w ard s[19 93]; Dollar and K raay [2 0 0 1]; G reenaw ay, M organ,
and W right [2 0 0 2 ]) hasrec ently c om e und er renew ed attac k(R od r¶iguez and R od rik [2 0 0 1]).
Iftrad e lib eralizationd oesprom ote grow th | a d eb ate to w hic h w e ad d nothing here |
33
T his canbepartiallyduetotheclosecorrelationoftheU S G SP program withthoseofotherdeveloped
states.
34
T his critique is ironicin the sensethatG SP is itselfdiscriminatory.
24
then, b y im plic ation, G SP im ped esgrow th inthe d eveloping w orld rather thanhelping it
b y d elayinglib eralization. U singone ofthe m ore optim istic ¯nd ingsab out the sub stantive
e®ec t oftrad e opennessongrow th (Dollar and K raay [2 0 0 1]), the result inM od el3, T ab le
3, suggeststhat,b y extension,rem ovingG SP eligib ility w ould b oost a c ountry'sper c apita
income over the next d ec ad e,once c om pound ed ,f
rom 0 :3 to 4 :3 perc ent.
Hopef
ully, our resultslead to m ore questionsthanthey answ ered .Som e ofthese questionsare ab out the ac tualpolitic alec onomy m echanism sthat c ause the e®ec tsw e id enti¯ed .
Sec ond ,the linkagesb etw eenthe G SP polic iesand the export perf
orm ance need to b e analyz ed .O ur mod elhasimplic ationsf
or how G SP statusa®ec tsthe export levelofa c ountry,
b ut at the same tim e G SP statushasb eenshow nto b e negatively a®ec ted b y export volum e
(OÄ z d enand R einhard t [2 0 0 2 ]).T hisend ogeneity issue isc ruc ialf
or c orrec t id enti¯c ationof
the true linkagesb etw eenexports (ifnot im port openness, the issue here) and G SP status.
F inally, there isneed f
or a m ore d etailed analysissince G SP statusc anb e d isaggregated
d ow nto the prod uc t-level.W e hope to ad d ressthese questionsinsub sequent papers.
R ef
erences
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erencesf
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[3] B aier,S.L.and J .H.B ergstrand [2 0 0 1],\T he G row th ofW orld T rad e:T ari®s,T ransport
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25
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ord U niversity P ress.
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[18] F inger,J .M ic hael,and W inters,L.Alan[19 98],\W hat Canthe W T O Do f
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) T he W T O as anInternationalO rganization,
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or InternationalDevelopm ent W orkingP aper 1,Harvard U niversity.
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30
8
T ab l
esand F igures
Country
A lbania
A ngola
A ntigua & B arbuda
A rgentina
A rgentina
A rmenia
B ahamas
B ahamas
B ahrain
B ahrain
B ahrain
B angladesh
B arbados
B elarus
B elize
B enin
B hutan
B olivia
B osnia
B otswana
B otswana
B razil
B runei
B ulgaria
B urkina Faso
B urma
B urma
B urundi
Cambodia
Cameroon
Cape V erde
CentralA frR ep
CentralA frR ep
CentralA frR ep
Chad
Chile
Chile
Chile
Colombia
Comoros
Congo (B razzaville)
Congo (Kinshasa)
Costa R ica
Cote d'
Ivoire
Croatia
Cyprus
Cyprus
Czech R epublic
D jibouti
D ominica
D ominican R ep
Ecuador
Egypt
ElSalvador
Equatorial G uinea
Estonia
Ethiopia
Y ears Status Country
93-0 0
O n Ethiopia
85-98 O n Fiji
81 -98 O n G abon
76-97 O n G ambia
98-0 0
O ff G hana
95-99 O n G renada
76-95 O n G uatemala
96-99 O ff G uinea
82-88
O n G uinea-B issau
89
O ff G uyana
90 -99 O n H aiti
76-0 0
O n H onduras
76-99 O n H ong Kong
94-99 O n H ong Kong
81 -0 0
O n H ungary
76-0 0
O n India
82-0 0
O n Indonesia
76-0 0
O n Israel
96-0 0
O n Israel
76-96 O n Jamaica
97-99 O ff Jordan
76-0 0
O n Kazakhstan
94
O ff Kenya
91 -0 0
O n Kiribati
76-99 O n Korea
76-89 O n Korea
90 -97 O ff Kyrgyz R ep
76-0 0
O n L aos
97-99 O n L atvia
76-99 O n L ebanon
86-99 O n L esotho
76-89 O n L ithuania
90
O ff M acau
91 -99 O n M acau
76-99 O n M acedonia
76-88
O n M adagascar
89-90
O ff M alawi
91 -0 0
O n M alaysia
76-0 0
O n M alaysia
82-99 O n M aldives
76-99 O n M aldives
76-97 O n M ali
76-0 0
O n M alta
76-0 0
O n M auritania
92-99 O n M auritania
76-96 O n M auritania
97-99 O ff M auritius
94-99 O n M exico
94-97 O n M exico
79-98 O n M oldova
76-0 0
O n M ongolia
80 -0 0
O n M orocco
76-0 0
O n M ozambique
76-0 0
O n N amibia
87-99 O n N epal
92-0 0
O n N icaragua
83-92 O ff N icaragua
Y ears Status Country
Y ears Status
93-99 O n N iger
76-99 O n
76-0 0
O n N igeria
00
On
99-0 0
O n O man
76-96 O n
76-0 0
O n P akistan
76-96 O n
76-0 0
O n P akistan
97-0 0
O ff
79-98 O n P anama
77-88
On
76-0 0
O n P anama
89
O ff
88-99 O n P anama
90 -0 0
On
76-99 O n P apua N ew G uinea
76-99 O n
76-0 0
O n P araguay
76-87 O n
76-98 O n P araguay
88-90
O ff
76-0 0
O n P araguay
91 -0 0
On
76-89 O n P eru
76-0 0
On
90 -0 0
O ff P hilippines
76-0 0
On
89-99 O n P oland
90 -0 0
On
76-0 0
O n P ortugal
76-86 O n
80 -0 0
O n P ortugal
87-99 O ff
76-95 O n R omania
8 0 -87 O n
96-0 0
O ff R omania
88-93 O ff
76-0 0
O n R omania
94-99 O n
77-0 0
O n R ussia
93-0 0
On
94-0 0
O n R wanda
76-99 O n
76-0 0
O n Samoa
8 0 -96 O n
79-94 O n Samoa
97-0 0
O ff
76-89 O n Sao T ome & P rincipe 88-0 0
On
90 -0 0
O ff Senegal
76-99 O n
93-99 O n Seychelles
76-0 0
On
86-99 O ff SierraL eone
76-0 0
On
92-99 O n Singapore
76-89 O n
90 -0 0
O n Singapore
90 -99 O ff
76-99 O n Slovakia
93-99 O n
92-99 O n Slovenia
92-99 O n
86-96 O n Solomon Islands
79-99 O n
97-99 O ff South A frica
94-0 0
On
94-99 O n Sri L anka
76-99 O n
76-99 O n St.Kitts & N evis
83-99 O n
76-0 0
O n St.L ucia
82-0 0
On
76-96 O n St.V incent& G ren. 79-99 O n
97-0 0
O ff Suriname
76-98 O n
83-95 O n Swaziland
76-0 0
On
96-99 O ff Syria
76-0 0
On
76-0 0
O n T anzania
85-99 O n
76-99 O n T hailand
76-0 0
On
76-93 O n T ogo
76-99 O n
94-98 O ff T onga
83-93 O n
99
O n T rinidad & T obago
76-0 0
On
76-0 0
O n T unisia
76-0 0
On
76-94 O n T urkey
76-0 0
On
95-0 0
O ff U ganda
8 0 -99 O n
95-99 O n U kraine
94-0 0
On
99
O n U ruguay
76-0 0
On
76-0 0
O n U zbekistan
94-99 O n
82-99 O n V anuatu
8 1 -99 O n
91 -99 O n V enezuela
8 0 -0 0
On
76-0 0
O n Y emen
92-99 O n
76-87 O n Z ambia
76-99 O n
88-0 0
O ff Z imbabwe
8 0 -0 0
On
T ab le 1.Country-Y earsinthe Analyses,b y G SP Status
31
T ab le 2 .Desc riptive Statistic s
Depend ent:
Dutiesi;t
M od els1 & 4
T ari® i;t
M od els2 & 5
Closurei;t
M od els3 & 6
Closurei;t
M od els7& 8
8:55~6:2 0
[0 ;55:82 ]
2 0 :4 8~15:31
[0 ;10 2 :2 ]
¡4 4 :67~2 9:0 3
[¡4 4 6:3;¡1:2 ]
¡4 6:2 2 ~2 6:96
[¡194 :9;¡1:2 ]
1987:3~6:5
[19 76;199 9]
19 91:8~5:1
[1981;19 99]
1989:0 ~6:9
[1976;2 0 0 0 ]
19 94 :9~3:0
[199 0 ;2 0 0 0 ]
0 :95~0 :2 1
[0 ;1]
0 :93~0 :2 5
[0 ;1]
0 :94 ~0 :2 4
[0 ;1]
|
|
|
|
0 :92 ~1:58
[0 ;14 :79 ]
Depend ent
Y eart
G SP i;t¡1
G SP Frac tioni;t¡1
T rend t¡1
8:2 3~1:65
[4 :68;10 :92 ]
2 3:17~6:0 9
[15:15;33:0 8]
¡4 0 :82 ~2 :4 8
[¡4 4 :2 ;¡36:2 ]
¡4 2 :68~1:34
[¡4 4 :2 ;¡4 0 :4 ]
IM F i;t¡1
0 :4 1~0 :4 9
[0 ;1]
0 :53~0 :50
[0 ;1]
0 :4 2 ~0 :4 9
[0 ;1]
0 :4 9 ~0 :50
[0 ;1]
LogG DP i;t¡1
2 2 :78~1:99
[17:9 ;2 7:3]
2 3:4 4 ~1:87
[18:8;2 7:3]
2 2 :2 9 ~2 :0 5
[17:4 ;2 7:3]
2 2 :55~2 :0 4
[17:5;2 7:3]
LogIncom ei;t¡1
7:2 2 ~1:17
[4 :51;10 :0 7]
7:30 ~1:2 4
[4 :59 ;10 :15]
7:0 6~1:2 0
[4 :4 4 ;10 :15]
7:14 ~1:2 4
[4 :4 4 ;10 :15]
Land loc ked i
0 :4 0 ~0 :37
[0 ;1]
0 :4 2 ~0 :36
[0 ;1]
0 :4 1~0 :38
[0 ;1]
0 :4 1~0 :38
[0 ;1]
G row thi;t¡1
3:83~5:68
[¡2 6:5;2 7:2 ]
3:4 9 ~4 :64
[¡2 2 :9;19:0 ]
3:39 ~6:50
[¡50 :2 ;86:9 ]
3:0 1~6:87
[¡50 :2 ;86:9]
112
14 99
10 0
787
138
2 62 4
138
12 64
Countries
O b servations
M ean~SD,[M in,M ax]
32
T ab le 3.O LS E stimatesofT rad e P olic y M od els
Depend ent Variab le: Dutiesi;t
T ari® i;t
Closurei;t
M od el:
1
2
3
M ethod :
O LS
O LS
O LS
Y ears:
1976-19 99 19 81-199 9
1976-2 0 0 0
Constant
2 2 :74 1¤¤
(3:0 2 2 )
¡18:32 8
(9:637)
¡10 9:4 6¤¤
(10 :4 16)
G SP i;t¡1
1:383¤
(0 :594 )
4 :9 77¤¤
(1:4 19)
9:757¤¤
(2 :84 9 )
T rend t¡1
0 :650 ¤¤
(0 :10 8)
0 :877¤¤
(0 :0 9 5)
0 :853¤¤
(0 :2 2 8)
IM F i;t¡1
¡0 :4 9 6
(0 :354 )
¡1:0 84
(1:2 36)
¡0 :0 0 4
(1:0 51)
LogG DP i;t¡1
¡0 :0 61
(0 :113)
2 :9 60 ¤¤
(0 :4 87)
7:62 8¤¤
(0 :30 5)
¡2 :673¤¤
(0 :2 0 7)
¡7:4 0 0 ¤¤
(0 :850 )
¡11:2 75¤¤
(0 :686)
Land loc ked i
¡0 :335
(0 :530 )
¡3:64 8
(1:932 )
3:34 8¤
(1:667)
G row thi;t¡1
0 :0 4 8
(0 :0 30 )
0 :184
(0 :110 )
¡0 :365¤
(0 :170 )
Countries
O b servations
Freq(G SP i;t¡1 = 0 )
2
R
F
112
14 99
69
0.
315
99 :19 ¤¤
110
787
54
0 .411
79:2 0 ¤¤
138
2 62 4
165
0 .370
2 2 1:2 2 ¤¤
LogIncomei;t¡1
¤
d enotestw o-tailed p < 0 :0 5; ¤¤,p < 0 :0 1.New ey-W est rob ust SE sinparentheses.
33
T ab le 4 .IV E stim atesofT rad e P olic y M od els
Depend ent Variab le: Dutiesi;t
T ari® i;t
M od el:
4
5
M ethod :
IV
IV
Y ears:
19 76-199 9
1981-199 9
Closurei;t
6
IV
19 76-2 0 0 0
Constant
4 :4 65
(8:4 2 0 )
¡66:80 0 ¤¤
(19:915)
¡174 :89 1¤¤
(2 6:610 )
G SP i;t
16:72 5¤¤
(6:363)
39 :512 ¤¤
(11:612 )
4 5:4 89 ¤¤
(13:4 63)
T rend t¡1
0 :4 0 6¤¤
(0 :152 )
0 :651¤¤
(0 :12 4 )
0 :4 71
(0 :2 9 2 )
IM F i;t¡1
¡1:4 51¤¤
(0 :556)
¡1:89 8
(1:4 67)
¡1:30 2
(1:2 10 )
0 :19 4
(0 :168)
3:30 9 ¤¤
(0 :559 )
8:0 92 ¤¤
(0 :364 )
¡2 :617¤¤
(0 :2 36)
¡5:519 ¤¤
(1:14 0 )
¡10 :4 4 8¤¤
(0 :785)
Land loc ked i
¡0 :4 16
(0 :569)
¡3:583
(2 :162 )
4 :32 4 ¤
(1:871)
G row thi;t¡1
0 :0 16
(0 :0 38)
0 :2 77¤
(0 :14 0 )
¡0 :34 5¤
(0 :174 )
Countries
O b servations
Freq(G SP i;t= 0 )
F
112
14 99
71
16:53¤¤
110
787
60
8:9 9 ¤¤
138
2 62 4
152
156:16¤¤
LogG DP i;t¡1
LogIncom ei;t¡1
¤
d enotestw o-tailed p < 0 :0 5; ¤¤,p < 0 :0 1.New ey-W est rob ust SE sinparentheses.
34
T ab le 5.E ®ec t ofG SP B ene¯tsonIm port P enetration
Depend ent Variab le:
Closurei;t
M od el:
7
8
M ethod :
O LS
IV
Y ears:
19 90 -2 0 0 0
199 0 -2 0 0 0
¡87:4 9 4 ¤¤
(2 8:2 57)
¡165:693¤¤
(51:0 2 8)
1:684 ¤¤
(0 :556)
|
|
18:0 39 ¤¤
(4 :114 )
T rend t¡1
0 :714
(0 :651)
¡2 :2 11
(1:2 39 )
IM F i;t¡1
¡2 :0 10
(1:52 3)
¡1:84 9
(2 :676)
LogG DP i;t¡1
6:4 50 ¤¤
(0 :4 52 )
2 :813¤¤
(1:0 68)
¡10 :582 ¤¤
(0 :871)
¡8:156¤¤
(1:4 0 6)
Land loc ked i
5:755¤¤
(2 :10 6)
16:668¤¤
(4 :54 1)
G row thi;t¡1
¡0 :387¤
(0 :165)
¡0 :667¤¤
(0 :2 4 6)
138
12 64
14 3 (t¡1)
0.
363
10 3:64 ¤¤
138
12 64
12 6 (t)
|
60 :60 ¤¤
Constant
G SP Frac tioni;t¡1
G SP Frac tioni;t
LogIncom ei;t¡1
Countries
O b servations
Freq(G SP = 0 )
2
R
F
¤
d enotestw o-tailed p < 0 :0 5; ¤¤,p < 0 :0 1.New ey-W est rob ust SE sinparentheses.
35
T ab le 6.E ®ec t ofG SP B ene¯tsonT rad e B arriers
Depend ent Variab le:
T R Ii;t
HF i;t
M od el:
9
10
M ethod :
O rd ered P rob it O rd ered P rob it
Y ears:
1998-2 0 0 0
19 96-2 0 0 0
G SP Frac tioni;t¡1
0 :0 66¤
(0 :0 33)
0 :0 9 6¤
(0 :0 4 0 )
T rend t¡1
0 :4 4 5
(0 :2 93)
0 :556
(0 :4 4 3)
IM F i;t¡1
¡0 :935¤¤
(0 :135)
¡0 :30 5¤¤
(0 :10 2 )
0 :0 64 ¤
(0 :0 30 )
¡0 :0 57
(0 :0 33)
¡0 :319 ¤¤
(0 :0 63)
¡0 :4 4 2 ¤¤
(0 :0 58)
Land loc ked i
0 :111
(0 :167)
¡0 :0 0 1
(0 :14 8)
G row thi;t¡1
¡0 :0 0 4
(0 :0 0 9)
0 :0 16
(0 :0 10 )
Countries
O b servations
Freq(G SP i;t¡1 = 0 )
LL
M od el 2
P seud o-R 2
138
386
62
-767.24
62 .72 ¤¤
0.
049
119
54 1
71
-716.29
14 9.28¤¤
0 .09 1
LogG DP i;t¡1
LogIncomei;t¡1
¤
d enotestw o-tailed p < 0 :0 5; ¤¤, p < 0 :0 1. Heterosc ed astic -c onsistent rob ust SE sin
parentheses. O rd ered prob it interc eptsom itted f
or b revity.
36
Duties as % Trade
Imports as % GDP
Average Nominal Tariff, %
50
40
30
20
10
0
On GSP
Dropped from GSP
F igure 1.T rad e P olic y b y G SP Status,Country-Y ear Averages,19 76-2 0 0 0
T he ¯gure includ es 14 6 (2 9) c ountriesw ith at least one year onG SP (d ropped f
rom
G SP ),f
or a totalof2 611 G SP c ountry-yearsand 168 ex-G SP c ountry-years. T -tests(w ith
unequalvariances) ofequalm eansac rossG SP and ex-G SP c ountry-yearsf
or Duties,T ari® ,
and Closure, w ith one-tailed p = 0 :0 0 , p = 0 :0 0 , and p = 0 :0 5, respec tively, rejec t the null
hypothesisf
or the f
orm er tw o variab lesand yield b ord erline resultsw ith the latter.
37
F igure 2
38