Preferential Market Access, Foreign Aid, and Economic Development. A Case of the EU-ACP Preferential Trade Agreement

Abstract

Several studies highlight that exporters in developing countries (LDCs) face substantial trade costs when exporting to developed countries (DCs). Thus, granting preferential market accessPreferential market access to LDCs by DCs is expected to play a pivotal role, especially in reducing trade costsTrade costs and ultimately promoting development in LDCs. Focusing on the EU-African, Caribbean and Pacific (ACP)African, Caribbean and Pacific (ACP) preferential market accessPreferential market access, we use the gravity modelGravity model to examine the trade effect of EU-ACPAfrican, Caribbean and Pacific (ACP) agreement conditional on foreign aidForeign aid. Our results show that EU-ACPAfrican, Caribbean and Pacific (ACP) is effective in promoting exports; however, only improves economic development if it is complemented with a sufficient level of foreign aidForeign aid.