The effect of the GSP+ policy on poverty

This study investigates the long-term impact of the special arrangement for sustainable development and good governance, the Generalised Scheme of Preferences Plus (GSP+). The policy was implemented by the European Union (EU) in 2005 to encourage development and decrease poverty in developing countries. Participating countries are granted non-reciprocal preferential market access conditional on the ratification and implementation of twenty-seven international conventions. The three main goals of the GSP+ arrangement are to promote good governance, stimulate sustainable development and, ultimately, to reduce poverty. While abundant literature has examined the effect of the GSP+ on good governance and sustainability, existing literature does not examine its overall effect on poverty. This thesis fills this gap by examining the impact of the GSP+ on poverty between 2005 and 2012. Poverty is operationalized as extreme poverty and is measured by poverty headcount, poverty gap, and, as a robustness test, infant mortality rate. Subject to the analysis are those countries that entered the GSP+ arrangement in its initial launch in 2005 and consistently participated until the end of the first period in 2012, leading to a sample of thirteen beneficiary countries. Those countries are compared to similar counterparts, namely those low- and middle-income countries of the standard generalised scheme of preferences (GSP). Based on fundamental economic theory, it is hypothesized that the GSP+ arrangement decreased poverty. To test this hypothesis, a differences-in-differences (DiD) analysis is conducted. This approach compares the poverty alleviation pattern among the GSP+ beneficiary countries before and after participating in the arrangement to patterns among control countries before and after the program period. Covariates are included to adjust for factors that violate the parallel trend assumption, which is a critical fundament of the DiD method. The main empirical results demonstrate that the GSP+ arrangement did not have a significant effect on reducing extreme poverty in its beneficiary countries in the period from 2005 to 2012. This is of particular interest since the alleviation of poverty, especially in developing countries, has been a complex and multifaceted task that policymakers have tried to achieve for years. Targeting developing countries through PTAs, even if coupled with extra non-trade-related provisions thus seems to provide an insufficient technique to reduce poverty. However, the results show that complementary policies, especially those focussing on education, access to credit, and political stability and absence of violence are necessary to reduce extreme poverty in developing countries.