The Dark Side of the Generalized System of Preferences

The Generalized System of Preferences (GSP) was established to promote the exports of low-income countries to industrialized countries in order to support their economic growth and development. However, the design of these schemes is rather complex and the effects of GSP have been found to be controversial. In our empirical analysis, based on an extensive dataset covering most of world trade, we find that GSP tends to foster developing countries' exports in the short-run, but hampers them in the long-run. Also, GSP granting countries are able to promote their own exports initially, while in the long-run their exports decrease. Taken together, GSP does not seem to be a suitable instrument to promote sustainable economic growth and development of low-income countries.