The effect of preferential tariffs of the EU: Some evidence from B&H



Abstract. The process of trade liberalization is more or less accompanied by a reduction or elimination of tariffs. In this sense, the preferential tariffs for foreign exporters aim to increase trade flows, ensure access to foreign markets and achieve social welfare. Namely, both before and after the signing of the Stabilization and Association Agreement in 2000, Bosnia and Herzegovina (B&H) realized some benefits from the reduction of preferential tariffs of the EU which aimed to ease the access of B&H products to the EU market. Accordingly, the question arises to what extent the preferential tariffs of the EU may lead to an increase in exports of products from the six leading sectors of B&H, observed on the basis of the volume of exports. In order to assess the effect of the preferential tariffs on the export of six leading sector of B&H, we applied the gravity equation, aggregate data on an annual basis from 1995 to 2015, and some econometric techniques, such as pooled OLS, fixed effects, random effects and dynamic panel GMM. The results of the coefficients have shown that the average preferential tariffs are significant, i.e. that have a positive effect on the overall exports. On the other hand, the results of the coefficient estimates of the average preferential tariffs on the individual export of six leading sectors have shown a significant effect in the case of half the sectors.

Keywords. Tariffs, Export, Sectors, Gravity equation.

JEL. F10, F11, F14.


Tariffs, Export, Sectors, Gravity equation.

Full Text:


Aggarwal, A. (2004). Impact of tariff reduction on exports: A quantitative assessment of Indian exports to the US. Working Paper, No. 120. [Retrieved from].

Alfieri, A., & Cirera, X. (2008). Unilateral trade preferences in the EU: An empirical assessment for the case of Mozambican exports. Discussion papers, No. 60E. [Retrieved from].

Anderson, E.J., & Van Wincoop, E. (2001). Gravity with gravitas: A solution to the border puzzle. NBER Working Paper, No.8079. doi. 10.3386/w8079

Anderson, E.J. (2010). The gravity model. NBER Working Paper, No.16576. doi. 10.3386/w16576

Bagwell, K., & Staiger W.R. (2001). The WTO as a mechanism for securing market access property rights: Implications for global labor and environmental issues. Journal of Economic Perspectives, 15(3), 69–88. doi. 10.1257/jep.15.3.69

Baier, L.S., Bergstrand, H.J., & Mariutto, R. (2014). Economic determinants of free trade agreements revisited: Distinguishing sources of interdependence. Review of International Economics, 22(1), 31–58. doi. 10.1111/roie.12095

Baldwin, R. (2011). Unilateral tariff liberalisation. Global COE Hi-Stat Discussion Paper Series, No.159. [Retrieved from].

Baldwin, R., & Taglioni, D. (2006). For dummies and dummies for gravity equations. NBER Working Paper, No.12516. doi. 10.3386/w12516

Bell, A., & Jones, K. (2015). Explaining fixed effects: Random effects modelling of time-series cross-sectional and panel data. Political Science Research and Methods, 3(1), 133-153. doi. 10.1017/psrm.2014.7

Bergstrand, J.H. (1989). The generalized gravity equation, monopolistic competition, and the factor-proportions theory in international trade. Review of Economics and Statistics, 71(1), 143-53. doi. 10.2307/1928061

Bown, P.C., & Crowley, A.M. (2016). The empirical landscape of trade policy. Cambridge Working Paper Economics, No.1624. [Retrieved from]

Bown, P.C, Karacaovali, B., & Tovar, P. (2014). What do we know about preferential trade agreements and temporary trade barriers?. Policy Research Working Paper, No. 6898. [Retrieved from].

Bown, P.C., & Irwin, A.D. (2016). The GATT’s starting point tariff levels circa 1947. Policy Research Working Paper, 7649. [Retrieved from].

Bucha, M.C., Kleinerta, J., & Toubalb, F. (2004). The distance puzzle: on the interpretation of the distance coefficient in gravity equations. Economics Letters, 83(3), 293-298. doi. 10.1016/j.econlet.2003.10.022

Calderón, C., Loayza, N., & Schmidt-Hebbel, K. (2005). Does openness imply greater exposure?. Policy Research Working Paper, No. 3733. [Retrieved from].

Calvo-Pardo, H., Freund, C., & Ornelas, E. (2009). The ASEAN free trade agreement impact on trade flows and external trade barriers. Policy Research Working Paper, No.4960. [Retrieved from].

Candau, F., Fontagne, L., & Jean, S. (2014). The utilisation rate of preferences in the EU. [Retrieved from].

Caporale, M.G., Rault, C., Sova, R., & Sova, A. (2009). Trade specialisation and economic convergence: Evidence from two Eastern European countries. Discussion Papers, No.875. [Retrieved from].

Chaney, T. (2013). The Gravity Equation in international trade: An explanation. NBERWorking Paper, No.19285. doi. 10.3386/w19285

Cirera, X. (2010). The impact of trade preferences on export prices in the European Union - who captures the preference rent?. Economics Department Working Paper Series, No.15. [Retrieved from].

Cipollina, M., Laborde, D., & Salvatici, L. (2013). Do Preferential trade policies (actually) increase exports? A comparison between EU and US trade policies. [Retrieved from].

Clark, S.T., & Linzer, A.D. (2015). Should I use fixed or random effects?. Political Science Research and , 3(2), 399-408. doi. 10.1017/psrm.2014.32

Deardorff, A. (1998). Determinants of bilateral trade: Does gravity work in a neoclassical world?. In A.J. Frankel, (Ed.), The Regionalization of the World Economy, (pp. 7-32). University of Chicago Press.

Dessus, S., Fukasaku, K., & Safadi, R. (1999). Multilateral tariff liberalisation and the developing countries. Policy Brief, 18, 1-7. doi. 10.1787/824730584535

Disdier, A., & Head, K. (2008). The puzzling persistence of the distance effect on bilateral trade. Review of Economics and Statistics, 90(1), 37-48. doi. 10.1162/rest.90.1.37

Estevadeordal, A., Freund, C., & Ornelas, E. (2008). Does regionalism affect trade liberalization towards non-members?. CEP Discussion Paper, No.868. [Retrieved from].

Feenstra, C.R., Markusen, A.J., & Rose, K.A. (2001). Using the gravity equation to differentiate among alternative theories of trade. The Canadian Journal of Economics/Revue canadienne d'Economique, 34(2), 430-447. doi. 10.1111/0008-4085.00082

Greene, H.W. (2008). Econometric Analysis (6rd ed.). New Jersey: Pearson Prentice Hall.

Hansen, D.J., & Sala, D. (2013). On the equivalence of tariffs and quotas for customs unions. Discussion Papers on Business and Economics, No.11. [Retrieved from].

Hayakawa, K. (2011). How serious is the omission of bilateral tariff rates in gravity?. IDE Discussion Paper, No.311. [Retrieved from].

Haveman, J.D., & Schatz, H.J. (2003). Developed country trade barriers and the least developed countries: The economic result of freeing trade. Discussion Paper, No.2003/46. [Retrieved from].

Karacaovalı, B., & Limão, N. (2005). The clash of liberalizations: Preferential versus multilateral trade liberalization in the European Union. Policy Research Working Paper, No. 3493. [Retrieved from].

Keenan, C.D., Naqvi, N., & Pech, G. (2011). A theory of dynamic tariff and quota retaliation. Joint Discussion Paper Series in Economics, No.44-2011. [Retrieved from].

Krugman, R.P., & Obstfeld, M. (1996). International Economics – Theory and Policy (4rd ed.). Reading: Addison Wesley Longman.

Kurtovic, S., & Talovic, S. (2015). Liberalization of trade with the European Union and its impact on the reduction in Central European free trade agreement 2006 trade balance deficit. International Journal of Economics and Financial Issues, 5(2), 552-556.

Kurtovic, S., Halili, B., & Maxhuni, N. (2016a). Bilateral trade elasticity: B&H versus its seven trade partners. MPRA Paper, No.72297. [Retrieved from].

Kurtovic, S., Halili, B., & Maxhuni, N. (2016b). Liberalization of trade with leading trade partners: Some evidence from Bosnia and Herzegovina. MPRA Paper, No.75053. [Retrieved from].

Linnemann, H. (1966). An Econometric Study of Trade Flows. Amsterdam: North- Holland.

Limão, N. (2005). Preferential trade agreements as stumbling blocks for multilateral trade liberalization: Evidence for the US. American Economic Review, 96(3), 896-914. doi. 10.1257/aer.96.3.896

Manchin, M. (2005). Preference utilization and tariff reduction in European Union imports from Africa, Caribbean, and Pacific countries. Policy Research Working Paper, No.3688. [Retrieved from].

Marno, V. (2004). A Guide to Modern Econometrics (2nd ed.). Chichester: John Wiley & Sons Ltd.

Melchior, A. (2003). A global race for free trade agreements: From the most to the least favoured nation treatment?. NUPI Papers, No.653. [Retrieved from].

Melchior, A., Zheng, J., & Johnsen, A. (2009). Trade barriers and export potential: Gravity estimates for Norway’s exports. [Retrieved from].

Nielsen, H. B. (2005). Generalized method of moments estimation. Econometrics 2. [Retrieved from].

Novy, D. (2009). Gravity redux: measuring international trade costs with panel dana. Working Paper Warwick Economic Research Papers, No.861. [Retrieved from].

Orefice, G. (2015). Non-tariff measures, specific trade concerns and tariff reduction. CEPII Working Paper, No.2015-30. [Retrieved from].

Pöyhönen, P. (1963). A tentative model for the volume of trade between countries. Weltwirtschaftliches Archiv, 90(1), 93-99.

Rose, K.A., & Ostry, D.J. (1989). Tariffs and the macroeconomy: Evidence from the USA. International Finance Discussion Papers, No.365. [Retrieved from].

Schmidheiny, K. (2016). Short Guides to Microeconometrics: Panel Data: Fixed and Random Effects. [Retrieved from].

Tinbergen, J. (1962). Shaping the World Economy: Suggestions for an International Economic Policy. New York: Twentieth Century Fund.

Wooldridge, J.M. (2002). Econometric Analysis of Cross Section and Panel Data. Massachusetts, London: The MIT Press Cambridge.



  • There are currently no refbacks.


Journal of Economics and Political Economy - J. Econ. Pol. Econ. - JEPE -

ISSN: 2148-8347. Editor :   Secretarial:   Istanbul - Turkey.

Copyright © KSP Journals