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AGOA Rules: The Intended and Unintended Consequences of Special Fabric Provisions

Author

Listed:
  • Lawrence Edwards

    () (University of Cape Town)

  • Robert Z. Lawrence

    () (Harvard University, John F. Kennedy School of Government)

Abstract

While exports of clothing from Africa to the United States responded impressively to the preferences they were granted under the African Growth and Opportunity Act (AGOA), this performance was not accompanied by some of the more dynamic benefi ts that might have been hoped for. Benefi ciary countries still do not have viable internationally competitive industries that could survive without the preferences, or that have diversifi ed horizontally into new products and markets or vertically into greater domestic value addition. In this paper we demonstrate that this outcome is a predictable consequence of incentives under the Multi-Fiber Arrangement (MFA) quotas and the AGOA trade preferences. Th e paper fi rst extends standard trade models and predicts that, in equilibrium, the MFA encouraged exports of low quality and low value added products by AGOA countries and higher quality and higher value added products by quotaconstrained countries. AGOA preferences further encourage specialization in clothing products with high fabric cost shares in the least developed countries receiving the preference. Th e paper then tests these theoretical predictions using diff erence-in-diff erences estimations by looking at changes in the value-added and fabric intensity of AGOA apparel exports in response to the ending of the MFA in January 2005 and the granting of AGOA preferences from 2001. Th e results show that MFA quotas and AGOA preferences caused least developed AGOA recipients to specialize in fabricintensive products with low value added as well as rising fabric content.

Suggested Citation

  • Lawrence Edwards & Robert Z. Lawrence, 2013. "AGOA Rules: The Intended and Unintended Consequences of Special Fabric Provisions," Working Paper Series WP13-11, Peterson Institute for International Economics.
  • Handle: RePEc:iie:wpaper:wp13-11
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    References listed on IDEAS

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    Cited by:

    1. Co, Catherine Y., 2014. "Supply-side constraints, capital goods imports, and the quality of Sub-Saharan African countries exports," WIDER Working Paper Series 142, World Institute for Development Economic Research (UNU-WIDER).
    2. Rotunno, Lorenzo & Vézina, Pierre-Louis & Wang, Zheng, 2013. "The rise and fall of (Chinese) African apparel exports," Journal of Development Economics, Elsevier, vol. 105(C), pages 152-163.
    3. Xavier Cirera & Francesca Foliano & Michael Gasiorek, 2016. "The impact of preferences on developing countries’ exports to the European Union: bilateral gravity modelling at the product level," Empirical Economics, Springer, vol. 50(1), pages 59-102, February.
    4. Rotunno, Lorenzo & Vézina, Pierre-Louis & Wang, Zheng, 2013. "The rise and fall of (Chinese) African apparel exports," Journal of Development Economics, Elsevier, vol. 105(C), pages 152-163.

    More about this item

    Keywords

    African Growth and Opportunity Act; AGOA; Multi-Fiber Arrangement; trade preferences; exports; apparel; industrial development; value chains; rules of origin;

    JEL classification:

    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F63 - International Economics - - Economic Impacts of Globalization - - - Economic Development
    • O14 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Industrialization; Manufacturing and Service Industries; Choice of Technology
    • O24 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - Trade Policy; Factor Movement; Foreign Exchange Policy

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