The perversity of preferences:: GSP and developing country trade policies, 1976-2000

Developed countries maintain special tariff preferences, namely the Generalized System of Preferences (GSP), for imports from developing countries. Critics highlight the underachieving nature of such preferences, but we know little about how they affect recipients' own trade policies. We conduct the first examination of this question, using a panel of 154 developing countries. We find that countries removed from GSP adopt more liberal trade policies than those remaining eligible. The results, robust to endogeneity and alternative measures, suggest that developing countries may be best served by full integration into the reciprocity-based world trade regime rather than continued GSP-style preferences. (c) 2005 Elsevier B.V All rights reserved.