Improving Preferential Market Access Through Rules of Origin
Firm-Level Evidence from Bangladesh
Published in: American Economic Journal: Economic Policy (2021)
Posted on rand.org Mar 23, 2021
In countries where there exist limited opportunities to source inputs locally, rules of origin undermine access to preferential trade agreements for final-goods exporters. I analyze the 2011 revision to the rules of origin associated with the EU's Generalized System of Preferences, which allowed apparel producers in least-developed countries (LDCs) to use internationally-sourced textiles in exported products. Using transaction-level data on Bangladeshi apparel firms, I find the rules of origin effectively cut the preferential margin by three-fourths. Liberalizing the rules of origin resulted in firm-level revenue growth, which was driven by the intensive margin through increased shipment sizes and quality up-grading.