Analysis of the US Unilateral Trade Policy for the Developing Countries: Impact on Trade Creation

Abstract

This study investigates the effects of the US unilateral trade policy on exports from beneficiary developing countries (BDCs) to the US market. It utilizes the Gravity model framework of international trade, employing the core gravity equation introduced by Tinbergen (1962) and Poyhonen (1963), and augments it with Batra's (2006) framework to account for other determinants of trade. The analysis focuses on factors such as Generalized Scheme of Preferences (GSP) imports, logistic performance index (LPI), Human Development Index (HDI), Concentration index, Global Innovation Index (GII), and dummy variables representing the African Growth & Opportunity Act (AGOA), Least Developing Countries (LDC), and landlocked countries. Surprisingly, the study finds that GDP has a negative impact, while distance has a positive impact on exports, contrary to the assumptions of the gravity model. The results also show a positive effect of GSP imports, but a significant negative impact of the AGOA variable on BDC exports. Moreover, the study highlights the positive influences of LPI and HDI on BDC exports. However, the Global Innovation Index and Concentration Index do not show significant effects on BDC exports. Therefore, the study suggests that BDCs should focus on enhancing human development and infrastructure to exploit export potential, as highlighted by the study's findings.