Preferential Market Access, Foreign Aid and Economic Development

Several studies highlight that exporters in developing countries face substantial trade costs. To reduce these costs, a few developed countries mainly Canada, the EU, Japan and the USA granted preferential market access to these exporters. We assess whether these preferential accesses have contributed to the economic development of the beneficiary countries. Focusing on the ACP countries over the period 1970-2009, we show that only the EU preferential scheme is effective in promoting exports and that market access plays a significant and economically large role in the development of beneficiary countries. This effect is more pronounced for high-aid receiving countries.