Gravity defied: Agoa's impact on its beneficiaries' trade with the U.S

The United States of America enacted the African Growth and Opportunity Act (AGOA) in 2000 to grant sub-Saharan African countries (SSA) preferential treatment in their exports to the USA. With this Act, most of the exports from SSA can now enter the USA duty-free. This is supposed to serve as a big boost to exports and the manufacturing sector in SSA. It is hoped that this singular act of assistance from the USA will spur entrepreneurship in SSA thereby creating jobs and jump starting meaningful economic growth in the region. Realizing what trade has done for many countries lately, especially the East Asian countries, AGOA is arguably the most meaningful intervention from a developed country to an under-developed region such as SSA in recent times.

AGOA has now been in existence for 13 years and it is time to take stock, and evaluate the impact of this initiative. This paper sheds some light on this issue by examining the flow and composition of trade between the USA and AGOA countries. The analysis uses trade data (US Imports) for 36 countries and 14 years. Preliminary results based on gravity models show that, in spite of a relatively large distance between the US and the AGOA countries, the gravity model holds, and that receiving AGOA status has a significant, strong positive impact on the overall trade with the US. Interestingly however, the results also show an unexpected significant negative relationship between the US imports from the AGOA countries and foreign direct investment in those countries. The paper brings a contribution to the area of international trade in general, and to the important research field that looks at the effect of trade agreements on a country’s export capability.