EU Trade Preferences and Export Diversification

Since at least the 1960s, the European Union (EU) has offered various kinds of non-reciprocal trade preferences for developing countries. Originally, these trade preferences had at least two policy goals: (i) to increase export volumes for developing countries and thereby boost their export earnings and (ii) to facilitate export diversification. While extensive research has confirmed that the first of these goals is typically met, the second goal seems to have been largely forgotten by researchers as well as in policy circles. The aim of this paper was therefore to analyse the impact of the EU's non-reciprocal trade preferences for developing countries on export diversification. Our estimation results suggest that some trade preference programmes, such as the Generalised Scheme of Preferences (GSP), lead to increasing ranges of export products. By contrast, preferences offered to Mediterranean countries typically have no significant effects, and African, Caribbean and Pacific (ACP) preferences actually have negative effects towards the end of our time period, suggesting that ACP countries may respond to preferences by specialising into fewer goods.