The Impact of the African Growth and Opportunity Act (AGOA): An Empirical Analysis of Sub-Saharan African Agricultural Exports

The African Growth and Opportunities Act (AGOA) which was signed into law in 2000 as part of U.S. trade legislation has the objectives of increasing trade and investment between the U.S. and eligible Sub-Saharan African (SSA) countries, by reducing or eliminating tariffs applied to African exports of different products. This Act represents a promising approach to economic growth and development in SSA through international trade. This research paper examines the impact of AGOA on African agricultural exports. The study uses the gravity trade model framework and panel data depicting annual agricultural trade from 35 eligible SSA countries to the United States over years both before and after AGOA’s implementation (1990-2011). There is wide variation in trade flows and the economic characteristics of the panel data obtained from the 35 SSA countries include numerous observations of zero trade flows. As the gravity equation is generally estimated in logarithms which are not defined for zero values, alternative statistical estimation methods, the Heckman model and the Poission family of regression modeling techniques, were used to test whether the inclusion of the zero values would change the parameter estimates significantly. The study differs from previous empirical analyses of AGOA which did not attempt to account for zero trade flows. In addition, most of these studies were based on data from the early years of AGOA while this study includes more recent data and is based on a longer time period. The statistical results indicate that the AGOA trade preferences do not have a statistically significant impact on SSA agricultural exports, although some of the model results indicate that AGOA may have a positive effect on SSA agricultural exports to the United States. Results from some of the models indicate that an increase in per capita GDP in the SSA countries decreases agricultural exports to the United States. Likewise, currency appreciation of the SSA countries decreases the agricultural trade flows. A tariff rate quota and the exclusion of some agricultural products from the legslation still limit AGOA’s broader positive economic impact. Further liberalization, reform and extension of AGOA for a longer time, investment to improve trade facilitation services, agricultural productivity and processing to meet high quality standards, and adoption of a comprehensive development assistance policy are needed if the African countries are to realize sustained economic growth and development. Keywords: AGOA, Agriculture, SSA, United States, Gravity Model