In much of the recent debate about trade preference erosion, opponents have stressed the impact that trade preferences have had on economic development in beneficiary countries. However, lack of quantification of preference margins and preference utilization has inhibited testing such hypotheses. This paper uses HS 8-digit level U.S. data to quantify both preference utilization and tariff preference margins for the CBERA beneficiary countries from 1984-1998. Panel data from 1970-1998 are then used to test the impact of preference erosion on growth and investment in ten beneficiary countries. A two-equation simultaneous model is developed which allows preference erosion to impact growth directly as well as indirectly through investment. Results show that CBERA preferences have been steadily eroding since 1984, while average CBERA preference utilization has risen dramatically since 1984. The panel estimation shows that CBERA preference erosion did discourage investment and growth (both directly and indirectly) in some beneficiary countries. However, increased CBERA utilization stimulated investment and growth, and is likely to have outweighed the effects of preference erosion on development. Preferential access to qualifying apparel imports via the production-sharing program had at least as large an effect as the CBERA. Finally, for all countries, increased openness mattered much more for development than preference erosion.
- trade preferences,