The African Growth and Opportunity Act (AGOA) and export diversification

Abstract

This paper explores the effect of the African Growth and Opportunity Act (AGOA) on export diversification in Sub-Saharan Africa. The existing empirical studies suggest that AGOA has had a positive effect on the overall volume of trade between Sub-Saharan Africa and the United States. However, the economic development literature emphasizes the importance of export diversification for developing countries; therefore, it is important to understand the effects of AGOA on the extensive margin of trade (i.e. the number of distinct products a country exports). Our empirical results suggest that AGOA does contribute to export diversification, specifically through its apparel provision. Countries that are eligible for the AGOA apparel provision export not only more apparel products, but also more non-apparel products to the USA. Thus, AGOA contributes to export diversification at the extensive margin of trade with the USA.

Keywords:

• Africa
• free trade agreement
• panel data
• diversification

JEL Classifications:

• F10
• O24

View correction statement:

Erratum

Acknowledgement

We would like to thank Ryan Leech for excellent research assistance and three anonymous referees for their helpful suggestions.

Notes

1. Angola; Benin; Botswana; Burkina Faso; Burundi; Cameroon; Cape Verde; Chad; Comoros; Republic of Congo; Cote d’Ivoire; Djibouti; Ethiopia; Gabon; Gambia; Ghana; Guinea; Kenya; Lesotho; Liberia; Malawi; Mali; Mauritania; Mauritius; Mozambique; Namibia; Niger; Nigeria; Rwanda; Sao Tome and Principe; Senegal; Seychelles; Sierra Leone; South Africa; South Sudan; Swaziland; Tanzania; Togo; Uganda; Zambia. http://agoa.info/about-agoa/country-eligibility.html.

2. An increase in the volume of exports of existing products, or trade expansion at the intensive margin.

3. An increase in the number of products exported, or trade expansion at the extensive margin.

4. Including Levin–Lin–Chu, Harris–Tzavalis, Breitung, and Im–Psearan–Shin, all with and without demeaning the variables. See Table A1.

5. For example, Frazer and Van Biesebroeck (2010) treat all countries that are ever AGOA-eligible as AGOA-eligible beginning in 2001, but this is not the case for more than 15% of the country–year observations after 2001 in our sample, since several countries gain AGOA-eligibility in years after 2001.

6. Estimates obtained using other models, including random-effects Poisson quasi-maximum likelihood, fixed-effects negative binomial, random-effects negative binomial, fixed-effects generalized least squares, and random-effects generalized least squares, are reported in Tables A2–A4.

7. Results obtained using negative binomial maximum-likelihood estimation are, not surprisingly, strikingly similar to the results presented in Section 4. See columns 3 and 4 of Tables A2–A4.

8. We thank an anonymous reviewer for helping us to clarify this important point.