Assessing the Trade Effects of Being Graduated from Non-Reciprocal Trade Preferences

The term graduation is applied when an industrialized country withdraws a sector or a country from non-reciprocal trade preferences. Sectors and countries are graduated when they supposedly can compete at world market level, but surprisingly little research has explored what effect on export flows graduation actually has. This thesis thoroughly identifies and explains the graduation mechanism, collects data of all cases of sector graduation within the EU’s GSP scheme and offers a detailed empirical overview. The effect on export flows for graduated sectors is assessed econometrically. Based on panel data through the gravity model, a regression analysis is performed to investigate whether graduation from trade preferences affects developing countries’ exports to the EU. The results indicate that graduation impose no significant effect on trade for graduated sectors exports to the EU over the whole sample. However, graduated sectors from poorer developing countries are affected negatively which adds validity to the graduation mechanism but also suggests that it may be poorly designed