Effects of the africa growth and opportunity act on exports of member states of West Africa Monetary Zone to the United States

Abstract

In the quest to improve the economic fortunes of developing countries, varieties of trade preferences have been introduced. This mechanism appears to be in support of the ‘trade not aid’ campaign. The AGOA trade preference enacted by the US in the year 2000 is one that has received much recognition in Sub Saharan Africa as a means of boosting export hence economic development. The importance of trade, especially in the developing countries calls for the need to study the effects of such a trade preference. This study is motivated by the relatively limited literature investigating the effects of trade preferences on regions and respective countries as well. Since results for a region might not be true for the individual countries this study focuses on how AGOA has affected exports of the zone and individual WAMZ member states to the US. Using gravity covariates and other export determinants for the period 1980 to 2016 sourced from IMF DOTS, WDI and CEPII, the study employs the gravity model and the fixed and random effects estimation techniques. After correcting for heteroscedasticity and a possible serial correlation, the study reveals that the AGOA trade preference has a negative effect on the exports of the WAMZ to the US. It also shows that exports from Ghana, Guinea and Liberia to the US have significantly reduced while exports from Nigeria and Sierra Leone to the US have increased significantly under AGOA. It is therefore suggested that WAMZ states renegotiate for relaxation of rules of origin and as well expansion of product coverage to include products in which the WAMZ member states have comparative advantage.