Are Trade Preferences more Effective than Aid in Supporting Exports? Evidence from the ‘Everything But Arms’ Preference Scheme

This study examines the effect of the Everything But Arms' (EBA) trade preferences regime on exports from the African, Caribbean and Pacific countries (ACP) to the European Union (EU). With this aim, an augmented gravity model is estimated for exports from the 79 ACP countries to the EU-15 for the time period of 19952013 using panel data techniques. The results are used to quantify the effect of the eligibility for EBA preferences on the export performance of the ACP least developed countries (LDCs) and to relate it to the impact of official development assistance on exports. In addition to their separate effects, the combined impact of EBA and aid flows is examined. The main results do not provide evidence for an additional positive effect of the EBA agreement on the export performance of the ACP LDCs. However, receiving aid shows a significant and positive effect on exports from EBA-eligible ACP countries to the EU-15, supporting an EU development strategy that includes both sorts of assistance, aid and trade preferences.