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Are Trade Preferences a Panacea? : The African Growth and Opportunity Act and African Exports

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  • Fernandes,Ana Margarida
  • Forero,Alejandro
  • Maemir,Hibret Belete
  • Mattoo,Aaditya

Abstract

Does"infant industry"preferential access durably boost export performance? This paper exploits significant trade policy changes in the United States around the turn of the 21st century to address this question. The expansion of Generalized System of Preferences (GSP) products for less developed countries in 1997 and the implementation of the African Growth and Opportunity Act (AGOA) in 2001 is used to assess whether preferential access boosts exports of eligible products in general and apparel specifically. The phase-out of the Multi-Fiber Arrangement (MFA) in 2005 is used to assess whether any expansion in apparel exports survived the erosion of preferences. To find a causal impact of these changes on exports to the United States from a given beneficiary country, the analysis uses a triple-differences regression and 26 years of newly constructed trade and tariff data at the country-product-year level (1992-2017). The analysis finds that the AGOA boosted African apparel exports, and the expansion of the GSP increased African exports of other eligible products. While the marginal impacts on African apparel exports grew sharply in the first years of AGOA, the impacts leveled off after 2005, when the end of the MFA quotas unleashed competition from Asian countries. The illusion of sustained African apparel exports is created by three late-bloomers in East Africa offsetting the boom-bust pattern in Southern Africa and the never-significant response in Central and Western Africa. Firm-level customs data for selected countries reveal that even in East Africa, the recent export growth was driven by new entrants rather than by incumbent firms whose competitiveness might have been nurtured by the big preference margins during the early AGOA period. Understanding the heterogeneous response to trade preferences remains a challenge. However, preliminary evidence suggests that preferential access per se was not sufficient but needed to be complemented by specific domestic reforms: tariff liberalization, reduced regulatory burden, enhanced connectivity, and competitive exchange rates.

Suggested Citation

  • Fernandes,Ana Margarida & Forero,Alejandro & Maemir,Hibret Belete & Mattoo,Aaditya, 2019. "Are Trade Preferences a Panacea? : The African Growth and Opportunity Act and African Exports," Policy Research Working Paper Series 8753, The World Bank.
  • Handle: RePEc:wbk:wbrwps:8753
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    References listed on IDEAS

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    1. Andrew K. Rose, 2004. "Do We Really Know That the WTO Increases Trade?," American Economic Review, American Economic Association, vol. 94(1), pages 98-114, March.
    2. Emanuel Ornelas & Marcos Ritel, 2018. "The Not-So-Generalized Effects of the Generalized System of Preferences," CESifo Working Paper Series 7304, CESifo Group Munich.
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    More about this item

    Keywords

    International Trade and Trade Rules; Construction Industry; Common Carriers Industry; Food&Beverage Industry; Plastics&Rubber Industry; Business Cycles and Stabilization Policies; General Manufacturing; Pulp&Paper Industry; Textiles; Apparel&Leather Industry; Commodity Risk Management; Mining&Extractive Industry (Non-Energy);

    JEL classification:

    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F68 - International Economics - - Economic Impacts of Globalization - - - Policy
    • O20 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - General
    • O55 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Africa

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