How Effective is Trade Conditionality?

• In Event: Poster Session: Political Economy

Abstract

When is trade conditionality effective at influencing the policies of foreign states? Conditionality could cause states who depend on trade to choose compliant policies or it could identify the states that would have chosen compliant policies even in the absence of conditionality. This paper separates causal compliance from coincidental compliance by evaluating whether the US Generalized System of Preferences (GSP) causes states to change policy. The program offers beneficiary developing countries the opportunity to export a wide variety of goods tariff free to the US, but eligibility for the program is conditional on respect for labor and intellectual property rights. Using a panel dataset and a differences-in-differences framework I find evidence that the program has a causal effect on the behavior of beneficiaries. Leveraging exogenous variation from administrative discontinuities in the GSP authorizing statute, I find that states gaining more from GSP membership also implement more compliant policies. Examining mechanisms of influence, I find that the US is both sufficiently able to commit to the conditionality and a sufficiently important market for domestic states to cause them to change policies.

Author

• Michael-David Mangini, Harvard University