Trade development - the impact of trade preferences in facilitating competitive Industrial development : an Agoa Case Study

Includes bibliographical references.The central question and motivation behind this paper is to determine whether trade preference agreements facilitate permanent economic development, or if they merely temporarily increase the volume of exports over the period of preferential market access. The paper will evaluate this, by using the case study of the African Growth and Opportunity Act (AGOA) enacted by the United States (US) in 2000. The literature and empirical data show that exports do increase in certain cases under trade preference agreements, however what is missing to a large extent is the impact that these increased exports have on facilitating competitive industrial development through learning-by-doing spill over effects. The objective of this paper is to identity evidence which supports the notion that trade preferences have the potential to advance competitive industrial development, by specifically looking at the impact that AGOA has had on eligible Sub-Saharan African (SSA) countries exports to third countries since its enactment in 2000 as the indicator of trade induced permanent economic development. This is one indicator of many, such as labour productivity, manufacturing output, foreign direct investment, and GDP per capita which could also be used as indicators of development. The remainder of this paper is organised as follows. In the second section, a review of the theoretical and empirical literature with respect to trade preferences and specifically AGOA preferences is discussed. Section three presents an empirical analysis, firstly in terms of a graphical analysis which is then followed by an econometric analysis. The aim of the empirical analysis is to firstly understand the aggregate story of apparel exports under AGOA preferences, and secondly to test the relationship that trade preferences facilitate economic development through enhanced trade. The fourth section concludes the paper by emphasising the key findings, issues and policy recommendations of the paper