The gravity model, African Growth and Opportunity Act (AGOA) and US trade relations with sub-Saharan Africa

Abstract

The United States of America enacted the African Growth and Opportunity Act (AGOA) in 2000 to grant sub-Saharan African countries (SSA) a preferential treatment in their exports to the USA. With this Act, most of the exports from SSA can now enter the USA duty-free, and this is expected to boost the exporting and manufacturing sectors in SSA. Hopefully, this singular act of assistance from the USA will spur entrepreneurship in SSA, thereby creating jobs and jump starting meaningful economic growth in the region. Since trade is a major catalyst in economic development, AGOA is arguably the most meaningful intervention from a developed country to an under-developed region such as SSA in recent times. Has AGOA had any impact on US trade with SSA? This paper sheds some light on this issue by examining the flow and composition of trade between the USA and AGOA countries. The analysis uses trade data (US imports) for 36 countries over 12 years. Empirical estimations based on the gravity model show that receiving AGOA status has a strong positive and significant impact on overall trade with the US. Interestingly, however, the analysis also shows a disproportionate impact of crude oil imports from the oil-producing countries of Angola, Gabon, and Nigeria, which is clearly not the intent of the Act.