List of key concepts

• Author: Development Solutions Europe Limited, Directorate-General for Trade (European Commission)
• Pages: 22-25

EUROPEAN COMMISSION

22

List of key concepts

Economic Concepts/Indicators

Eligible preferences

Goods that can access preferential tariff treatment

under a given trade agreement

Utilisation rate

GSP preferential imports as a percentage of eligible

imports under the respective GSP arrangement

Coverage rate

Eligible preferential imports divided by total dutiable

imports

Margin of preference

The difference between the duty payable under a GSP

arrangement and the duty that would be accessible

under MFN conditions

Preference erosion

The process by which the preference granted to a

specific good loses its nominal or relative value

Most-Favoured-Nation

(MFN) tariff

The highest amount of duty that a country can impose

on imports from a non-preferential trading partner

Trade volumes

The amount of goods traded between two countries

measured in terms of value or quantity

Terms of trade

Relative price of exports in terms of imports

Intensive margins

The increase in the quantity of a good traded as a

result of a reduction of exporting costs, which further

leads to an expansion of existing exports.

Extensive margins

The increase in the number of goods traded as a result

of a reduction of exporting costs, which further leads to

a widening or diversification in the range of products

that are exported).

Sectoral output

The output of an industry at a given level of

aggregation

Export diversification

Export diversification refers to a change in a country’s

export structure, which is typically reflected in the

range of goods that is exported from the same sector

or from different sectors.

Herfindahl index

It is the sum of squared shares of each product in total

export. A country with a perfectly diversified export

portfolio will have an index close to zero, whereas a

country which exports only one product will have a

value of 1 (least diversified)

Gravity model

The gravity model is often referred to as the

‘workhorse’ of international trade policy analysis. It is

used to analyse the determinants of bilateral trade

flows. The basic model predicts bilateral trade flows to

be positively related to economic size (often using GDP

measurements) and negatively related to distance

between two countries. Enhanced models used in this

study estimate the impact of additional variables such

as the applicable trade regime and the preference

margins applied.

Fixed effects model

A fixed effects model is a statistical model that is used

primarily to remove omitted variable bias by measuring

change within a group. It controls for unobserved

heterogeneity when heterogeneity is constant over

time and correlated with independent variables.

Social, Human Rights and Governance Concepts/Indicator s