Does the Designation of Least Developed Country Status Promote Exports?

In this paper, we examine the extent to which developing countries export more as a result of being officially labelled as an LDC and consequently being eligible for a range of unilateral trade preferences. We estimate a gravity model of trade over the period of 1970 to 2013, in which identification is achieved by exploiting the particularities and asymmetries of ‘inclusion’ and ‘graduation’ criteria from LDC status. The main results show that inclusion in the official LDC list is associated with substantially higher exports. This is particularly the case for LDCs that also export manufactured and industrial goods and started to play a significant role after 1990. In addition, we evaluate the impact of developed countries’ trade preferences on the exports of LDCs and the effectiveness of the trade preference schemes of the EU, the US, Canada, Japan, Australia, New Zealand, Norway and Turkey to better understand the mechanism at play. Unilateral preference regimes are, on average, not always beneficial in terms of increased export values for beneficiary developing countries but do have an impact on some sectors. They are mostly beneficial for agricultural goods and a few for manufactured goods, including textiles. As far as individual preference schemes are concerned, positive and statistically significant effects are found for the GSP schemes of Canada and Turkey. The positive effect of LDC status, however, is statistically significant and sizable even when controlling for trade preference schemes suggesting that other benefits of that status play a role in promoting exports.