Preferential Access to the EU and US Markets?

substantial, even in high-income countries (Borchert, Gootiiz, and Mattoo 2014; OECD 2021).

Using World Bank Enterprise Surveys data, Hoekman and Shepherd (2015) examine how services productivity affects the productivity of manufacturing firms and the relationship between the manufacturers’ productivity and firm-level export performance. They find a strong link between services and manufacturing performance, with the link being stronger for firms that use services inputs more intensively. At the average rate of services input intensity, they estimate that a 10 percent improvement in services productivity was associated with a 0.3 percent increase in manufacturing productivity and a resulting 0.2 percent increase in exports. At the sectoral level, they find that restrictions on transportation and retail distribution services had the largest negative impact on goods export performance.

A developing region such as Sub-Saharan Africa cannot afford to constrain its growth because of poorly performing services trade. It is therefore important to assess thoroughly the state of services liberalization in the region and estimate the productivity forgone by restricted services sectors, determining more specifically which dimensions of the economic governance and institutional frameworks are relevant in shaping the effects of services trade policies. Analysis to better understand the regulatory and trading institutions affecting the quality of services trade is therefore necessary to be able to identify specific policy implications and recommendations.

Such an exercise cannot be performed with only country-level variables. Instead, data on sector-specific governance institutions must be collected and matched with services-specific trade policy measures to assess how the services restrictiveness measures interact with different country characteristics and institutional variables—both horizontal (such as those related to competition policy) and sector-specific (such as those related to regulatory regimes). Chapter 7 of this book provides some preliminary results.

How Can Sub-Saharan African Countries Boost Exports through Preferential Access to the EU and US Markets?

Develop Institutions and Infrastructure

The first response comes from research conducted by the World Bank’s Office of the Chief Economist of the Africa Region and the Macroeconomics, Trade, and Investment Global Practice (Kassa and Coulibaly 2019). This study examines the AGOA’s trade creation impact using the synthetic control method—a quasi-experimental approach (see chapter 1). The novelty in the approach is that it addresses problems of estimation that are prevalent in the nonexperimental methods used to analyze the impact of preferential trade agreements.

The findings show that most of the eligible countries registered gains in exports owing to the AGOA, which compels all beneficiary countries to

fully use the preferences offered by the agreement. The positive trade impacts were largely associated with improvements in ICT infrastructure; integrity in the legal and property rights institutions; ease of labor market regulations; and sound macroeconomic environments, including stable exchange rates and low inflation. By developing such institutions and infrastructure, Sub-Saharan African countries can also minimize undue exposure to a single market or few export commodities and can maximize the gains from trade.

Implement Tariff Liberalization and Other Domestic Reforms

The second answer comes from research conducted by the World Bank’s Trade and Integration Research Group. Preferential access to foreign markets has been used as a mechanism to stimulate export growth in Africa, but there is little evidence on whether it durably boosts exports of manufactured goods. To address this question, Fernandes et al. (2019) exploit significant policy changes in the United States around the turn of the twenty-first century—the GSP product expansion for LDCs in 1997 and the AGOA’s implementation in 2001—to assess whether preferential access increased exports of all eligible products in general and of apparel specifically. This study also examines the Multifiber Arrangement (MFA) phaseout in 2005, to assess whether any expansion in apparel exports survived the erosion of preferences.7

To find a causal impact of these changes on exports to the United States by a given Sub-Saharan African country, the study uses a triple-differences regression and 26 years of newly constructed data on exports to the United States at the country Harmonized System 6-digit level (1992–2017). It finds that the biggest boost from the AGOA to African countries’ exports was for apparel products. However, although the marginal impacts on African apparel exports grew sharply in the first years of the AGOA, they leveled off after 2005, when the end of the MFA quotas unleashed competition from Asian countries.

Furthermore, the AGOA’s impact on apparel varied across subregions. Some countries, mostly in Central and West Africa, never took meaningful advantage of the AGOA. Countries in Southern Africa displayed a boombust pattern with strong growth in the first years, followed by a decline in the post-MFA years. Eastern Africa saw late success but eventually sustained growth in apparel exports.

Understanding the heterogeneous responses to preferences remains a challenge (as further discussed in chapter 2). However, preliminary evidence suggests that preferential access per se is not sufficient. It needs to be complemented by three types of domestic reforms: 1. Improved access to imported inputs through tariff liberalization 2. Reduced regulatory burdens and enhanced access to infrastructure through the creation of special economic zones 3. Competitive exchange rates through flexible exchange rate regimes.

Prepare for a Post-AGOA Period by Joining Regional Integration Aspirations with Trade Agreements with the Rest of the World

The third answer comes from research conducted by the World Bank’s Macroeconomics, Trade, and Investment Global Practice (Coulibaly 2017). The AGOA and the EU’s EBA have helped somewhat to boost Sub-Saharan Africa’s exports since 2001 (see chapter 3). However, not all African countries have benefited from the two preferential agreements, including countries in West Africa. Paradoxically, these countries host two of the most advanced RECs in Sub-Saharan Africa: the West African Economic and Monetary Union (WAEMU) and ECOWAS. WAEMU shares a common monetary policy that has consistently maintained low and stable inflation and established a customs union with a compensation mechanism to uphold the common external tariff. ECOWAS maintains a regional military force (the ECOWAS Monitoring Group) and peer pressure, which have rooted out military coups in its member countries.

Simulations derived from a Poisson pseudo-maximum likelihood gravity model estimation show that West Africa could be exporting 2.5 to 4 times more to the EU and the US if the AGOA and EBA were not implemented in a differentiated manner in terms of country eligibility, product coverage, and rules of origin (Coulibaly 2017). Given such trade creation potential for a group of countries committed to deep regional integration, a revision of the AGOA and EBA, or a special ECOWAS/WAEMU provision, would make these preferential trade agreements driving forces behind the success of regional integration in Sub-Saharan Africa.

The rising protectionist policies of high-income economies signal the rise of uncertainty in trade agreements associated with preferential access for Sub-Saharan Africa’s exports. These economies are expressing interest in transitioning from nonreciprocal to more-reciprocal trade agreements in their trade dealings with LMICs, including those in Africa. The EU is negotiating EPAs with African countries, as a sign of a shift to reciprocity. The United States is considering a similar path by developing the African Free Trade Act, which plans to enter free trade agreements with selected African countries.

These developments underscore the need to prepare for a post-AGOA period with more reciprocity. African countries need to marry their regional integration aspirations with their trade agreement negotiations with Asia, the EU, and the US. (For more on trade with Asia, see chapter 4.) The region’s countries need to negotiate as a group, by establishing “African Economic Areas”—neighborhood-like blocs of countries with higher potential for integration—that reinforce regional access to export markets in high-income economies.

In sum, trade agreements with individual African countries tend to reinforce the economic and political fragmentation that has long choked the region’s prospects for increased integration. Changes in the relative size of export markets—and the often-low use of preferences in trading with