Limão, NunoOlarreaga, Marcelo2013-12-202013-12-202006-05-17World Bank Economic Reviewdoi:10.1093/wber/lhj013https://hdl.handle.net/10986/16431The proliferation of preferential trade liberalization over the last 20 years has raised the question of whether it slows multilateral trade liberalization. Recent theoretical and empirical evidence indicates that this is the case even for unilateral preferences that developed countries provide to small and poor countries, but there is no estimate of the resulting welfare costs. This stumbling block effect can be avoided by replacing the unilateral preferences with a fixed import subsidy, which generates a Pareto improvement. More importantly, this paper presents the first estimates of the welfare cost of preferential liberalization as a stumbling block to multilateral liberalization. Recent estimates of the stumbling block effect of preferences with data for 170 countries and more than 5,000 products are used to calculate the welfare effects of the European Union, Japan, and the United States switching from unilateral preferences for least developed countries to an import subsidy scheme. In a model with no dynamic gains to trade, the switch produces an annual net welfare gain for the 170 countries that adds about 10 percent to the estimated trade liberalization gains in the Doha Round. It also generates gains for each group: the European Union, Japan, and the United States ($2,934 million), least developed countries ($520 million), and the rest of the world ($900 million).en-USCC BY-NC-ND 3.0 IGOABSOLUTE VALUEACCORDSAD VALOREMADJUSTMENT ASSISTANCEAGRICULTURAL SECTORAGRICULTUREBALANCE OF PAYMENTSBENCHMARKBILATERAL TRADECOMPARATIVE ADVANTAGECOMPETITIVE POSITIONCONCESSIONSCONSTANT RETURNS TO SCALECUSTOMSDEMAND ELASTICITIESDEVELOPED COUNTRIESDEVELOPING COUNTRIESDEVELOPMENT ASSISTANCEDIFFERENTIAL TREATMENTDIRECT TRANSFERSDOMESTIC PRICEECONOMIC POLICIESECONOMIC POLICYECONOMIC RELATIONSECONOMIC RESEARCHELASTICITYENVIRONMENTAL STANDARDSEQUILIBRIUMEUROPEAN UNIONEXPORT MARKETSEXPORT PRICEEXPORT REVENUEEXPORT SPECIALIZATIONEXPORT SUPPLYEXPORTERSEXPORTSEXTERNALITIESEXTERNALITYFOREIGN PRODUCERFREE TRADEFREE TRADE AGREEMENTFREE-TRADE AGREEMENTSFUTURE RESEARCHGDPGENERAL AGREEMENT ON TARIFFSGENERAL EQUILIBRIUMGENERAL EQUILIBRIUM MODELGENERALIZED SYSTEM OF PREFERENCESGLOBAL ECONOMYGLOBAL TRADEGLOBAL TRADINGHUMAN RIGHTSIMPORT DUTIESIMPORT TARIFFSINDUSTRIALIZED COUNTRIESINEQUALITYINFANT INDUSTRYINFANT INDUSTRY ARGUMENTINTELLECTUAL PROPERTYINTELLECTUAL PROPERTY PROTECTIONINTERNATIONAL BANKINTERNATIONAL ECONOMICSINTERNATIONAL TRADEINTERNATIONAL TRADE COMMISSIONINTERNATIONAL TRADE POLICYLDCSLEGAL PERSPECTIVELESS DEVELOPED COUNTRIESMARKET ACCESSMARKET INTEGRATIONMOST FAVORED NATIONMULTILATERAL LIBERALIZATIONMULTILATERAL TARIFFSMULTILATERAL TRADEMULTILATERAL TRADE LIBERALIZATIONNATIONAL BUREAUNET EXPORTSPERFECT COMPETITIONPOLICY RESEARCHPOLITICAL ECONOMYPREFERENTIAL ACCESSPREFERENTIAL AGREEMENTPREFERENTIAL AGREEMENTSPREFERENTIAL MARGINPREFERENTIAL MARGINSPREFERENTIAL TARIFFPREFERENTIAL TARIFFSPREFERENTIAL TRADEPREFERENTIAL TRADE AGREEMENTPREFERENTIAL TRADE AGREEMENTSPREFERENTIAL TRADE ARRANGEMENTSPREFERENTIAL TRADE LIBERALIZATIONPREFERENTIAL TREATMENTPREFERENTIAL ~ TRADEPREFERENTIAL ~ TRADE AGREEMENTSPRICE EFFECTSPRICE SUPPORTRECIPROCITYREGIONAL INTEGRATIONREGIONALISMRULES OF ORIGINSPECIALIZATIONTARIFF CHANGESTARIFF DATATARIFF LINETARIFF PREFERENCETARIFF PREFERENCESTARIFF RATETARIFF REDUCTIONTARIFF REDUCTIONSTARIFF REVENUETAX RATETERMS OF TRADETERMS OF TRADE EFFECTSTRADE BARRIERSTRADE DISTORTIONSTRADE EFFECTTRADE FLOWSTRADE INTEGRATIONTRADE MODELTRADE NEGOTIATORSTRADE OBJECTIVESTRADE PREFERENCETRADE PREFERENCESTRADE REFORMTRADING PARTNERSTRANSPORT COSTSUNILATERAL PREFERENCESUNILATERAL TRADEURUGUAY ROUNDVALUE OF IMPORTSWELFARE GAINSWORKER RIGHTSWORLD MARKETWORLD MARKETSWORLD PRICEWORLD PRICESWORLD TRADEWORLD TRADE ORGANIZATIONWORLD TRADING SYSTEMWTOJournal ArticleWorld Bank10.1596/16431