The Generalized System of Preferences of the United States: Does It Promote Industrialization and Economic Growth in Least Developed Countries?

The Generalized System of Preferences (GSP)—a system of differential and favorable trade arrangements toward less developed countries, adopted by the General Agreement on Tariff and Trade (GATT)—has been around since the early 1970s. A primary objective of these schemes has been to promote industrialization and economic growth in less developed countries through trade rather than aid. The outcome of such programs has, however, been mixed. This paper identifies some of the underlying political and economic dynamics which led to the dismal performance of the GSP schemes of the United States in respect to the industrialization and economic growth of the Least Developed Countries (LDCs). The paper suggests that the effectiveness of GSP schemes could be significantly improved if they were brought under the binding WTO rules, if greater resources were directed to removing supply constraints in the LDCs, and if developed countries granted unwavering market access to LDC exports.