Trade Preferences to Small Developing Countries and the Welfare Costs of Lost Multilateral Liberalization
The proliferation of preferential trade liberalization over the last 20 years has raised the question of whether it slows multilateral trade liberalization. Recent theoretical and empirical evidence indicates that this is the case even for unilater...
| Main Authors: | , |
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| Format: | Journal Article |
| Language: | English en_US |
| Published: |
Oxford University Press on behalf of the World Bank
2013
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| Subjects: | |
| Online Access: | http://documents.worldbank.org/curated/en/2006/05/17753325/trade-preferences-small-developing-countries-welfare-costs-lost-multilateral-liberalization http://hdl.handle.net/10986/16431 |
| Summary: | The proliferation of preferential trade
liberalization over the last 20 years has raised the
question of whether it slows multilateral trade
liberalization. Recent theoretical and empirical evidence
indicates that this is the case even for unilateral
preferences that developed countries provide to small and
poor countries, but there is no estimate of the resulting
welfare costs. This stumbling block effect can be avoided by
replacing the unilateral preferences with a fixed import
subsidy, which generates a Pareto improvement. More
importantly, this paper presents the first estimates of the
welfare cost of preferential liberalization as a stumbling
block to multilateral liberalization. Recent estimates of
the stumbling block effect of preferences with data for 170
countries and more than 5,000 products are used to calculate
the welfare effects of the European Union, Japan, and the
United States switching from unilateral preferences for
least developed countries to an import subsidy scheme. In a
model with no dynamic gains to trade, the switch produces an
annual net welfare gain for the 170 countries that adds
about 10 percent to the estimated trade liberalization gains
in the Doha Round. It also generates gains for each group:
the European Union, Japan, and the United States ($2,934
million), least developed countries ($520 million), and the
rest of the world ($900 million). |
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