Effectiveness of economic cooperation between the EU and the ACP countries

Purpose – Since the First Yaoundé Convention (1963‐1969), the European Union (EU) has been implementing its development policy in the African, Caribbean, and Pacific (ACP) countries. The purpose of this paper is to focus on the trade and financial flows between the EU and the ACP countries and attempt to empirically evaluate the effectiveness of the EU's development policy during the pre‐Cotonou era (1970‐2000). Design/methodology/approach – Extensive trade, governance, and external financing data are gathered about 79 ACP countries during the period 1970‐2004. Using the index of standardized trade performance, diversification indices, and regression analysis, the effectiveness of trade preferences and financial assistance in the ACP countries is quantified. Findings – The results indicate that the preferential trade arrangements between the EU and the ACP countries had neither substantially increased the ACP countries' exports to the EU nor diversified these countries' export structure. Additionally, even though the ACP countries received substantial external financing, these countries continued suffering from the lack of development‐enhancing political and judicial institutions. The empirical results suggest that governance characteristics such as higher corruption and lower democratic accountability have adversely affected the ACP countries' growth rates. Research limitations/implications – This paper focuses on the effectiveness of the economic cooperation between the EU and the ACP countries during the pre‐Cotonou era. The Cotonou agreement that went into effect in 2000 has changed the EU's approach to the ACP countries significantly. However, the recent nature of this agreement imposes restrictions on data availability, which forces us to exclude the Cotonou era from most of our empirical evaluation. Practical implications – The empirical results of the paper demonstrate the relevance of governance‐related factors or institutions in developing countries. Neither preferential trade nor financial assistance seems to enhance the growth performance of these countries if they lack political transparency and accountability. Originality/value – This paper provides empirical evidence that the change in the EU's approach to its economic partnership with the ACP countries is warranted. Because the empirical results suggest that the pre‐Cotonou economic cooperation between the EU and the ACP countries did not contribute to the ACP countries' economic growth, the EU's decision of shifting the focus from trade preferences to governance‐related issues in the ACP countries can be viewed as justified.