Preference erosion and the developing countries exports to the EU: a dynamic panel gravity approach

Abstract

Since 2004 there has been a sharp decrease in border protection for the EU rice industry. Because the EU grants trade preferences to a considerable number of rice exporting developing countries, the reform implied preference erosion as well. By addressing the impact of preference erosion on developing countries rice exports to the EU, this paper contributes two original insights to the literature: first, by proposing a new empirical approach to compute the preference margin when tariff rate quotas are in force which is based on the assumption of the existence of fixed costs and economies of scale in international trade; second, by estimating the trade elasticities of preferences by means of a dynamic panel gravity equation to deal with the issues of endogeneity of preferences and persistency in bilateral trade flows. The results show that the way preference margins are calculated matters significantly when assessing the existence and extent of their erosion and the values of trade elasticities. Finally, the estimations highlight the fact that the impact of preferences is still very strong for some of the countries concerned.

The impact of EU trade preferences on the extensive and intensive margins of agricultural and food products

“…To capture the impact of trade agreements most papers have used a simple dummy variable as in Eq. , whereas direct measures of trade policies such as tariffs (Buono and Lalanne, ; Dennis and Shephard, ) or the preference margin (Cipollina and Salvatici, ; Raimondi et al, ) have been little used. We incorporate both the applied tariffs and a dummy for the PTAs of the EU.…”

The Effect of Aggregation Bias: AnNTB‐modelling Analysis of Turkey's Agro‐food Trade with theEU

“…We use a panel data framework to obtain the most reliable estimate of the average expected effect of the European integration process (Baier and Bergstrand, 2007;Magee, 2008;Raimondi et al, 2012), but there are different specifications of the panel gravity equation (compare Egger and Pfaffermayr, 2003;Micco et al, 2003;Baldwin and Taglioni, 2006;Stack, 2009;Sun and Reed, 2010). For our analysis, we choose the panel structure with timefixed and bilateral fixed effects.…”

RTAs' Proliferation and Trade‐diversion Effects: Evidence of the ‘Spaghetti Bowl’ Phenomenon

“…The unobservable bilateral variables – included in the error term – influence the variable of interest (RTA) and volume of trade simultaneously. The best way to account for endogeneity due to omitted variable bias is to use fixed effects modelling (see Baier and Bergstrand, ; Martínez‐Zarzoso et al., ; De Benedictis and Taglioni, ; Raimondi et al., ) . Equation includes the time‐varying multilateral resistance terms (country‐and‐time fixed effects – and ).…”