Trade Growth under the African Growth and Opportunity Act∗

This paper explores whether one of the most important U.S. policies towards Africa of the past few decades achieved its desired result. In 2000, the United States dropped trade restrictions on a broad list of products through the African Growth and Opportunity Act (AGOA). Since the Act was applied unilaterally and selectively to both countries and products, we estimate the impact with a triple difference-in-differences estimation, controlling for both country and product-level import surges at the time of onset. This approach allows us to better address the ‘endogeneity of policy’ critique of standard difference-in-differences estimation if either a country or a product-level analysis was performed separately. Despite the fact that the AGOA product list was chosen to not include ‘import-sensitive’ products, and despite the general challenges of transaction costs in African countries, we find that AGOA has a large and robust impact on apparel imports into the U.S., as well as the agricultural, and manufactured products treated by AGOA. These import responses grew over the period of AGOA, and were the largest in product categories where the tariffs removed were large. AGOA did not result in a decrease in exports to Europe in these product categories, suggesting that the U.S.-AGOA imports were not merely diverted from elsewhere, or at least not from Europe. Implications of these findings are discussed. ∗We would like to thank Melanie O’Gorman and Lijun Zhang for excellent research assistance. Comments by Petia Topalova and participants at the ESWC 2005, NEUDC 2005, and seminars at Columbia andWilfried Laurier Universities are greatly appreciated. Financial support from SSHRC is gratefully acknowledged. †Corresponding author: Rotman School of Management, University of Toronto, 105 St. George Street, Toronto, Ontario M5S 3E6, Canada. E-mail: [email protected]. Tel. 416 978 5692. Fax 416 978 5433. 1 Preliminary, Incomplete, and not Proofread Please do not cite