Conclusion

essential for policy makers to identify priorities. Reform that focuses on a few priorities would have a greater impact. We show that many countries in SubSaharan Africa have taken advantage of the opportunities provided by the AGOA, but the results vary across countries and over time within countries. Countries with better ICT infrastructure; a relatively better functioning and effective judiciary, and hence better contract enforcement institutions; and a better macroeconomic environment (including stable exchange rates) have registered the most significant AGOA-related export gains.

Increasing exports and improving trade—and hence promoting growth— in Sub-Saharan Africa require improvements in a set of institutions for property rights protection and legal structures. Although improvements in other institutional areas, such as reduction of corruption, are also important for trade and exports, policy priorities focused on the rule of law, the quality of the judiciary, and contract enforcement seem to generate greater returns. Sub-Saharan African countries also need to adopt a set of sound macroeconomic policies to keep inflation low and exchange rates stable and competitive. Finally, building on the quality and quantity of physical infrastructure, ICT, and other infrastructure presents opportunities for expanding exports for international trade. These represent the critical mass of reforms needed to boost the AGOA’s transformation impact on beneficiary Sub-Saharan African countries.

Conclusion

This chapter has examined the AGOA’s aggregate impact using SCM, a quasi-experimental approach. The novelty in the empirical approach is that it addresses the fundamental problems of estimation that are prevalent in nonexperimental methods such as the gravity model.

The main finding is that most of the eligible countries registered gains in exports due to the AGOA. However, the results were varied and the export gains largely unsteady. Much of the gains were attributable to petroleum exports, although a few countries expanded into exports of manufactured and other industrial goods. When the gains were derived from exports of fuel, they were largely unsteady. When they were based on nonfuel exports, the gains increased consistently over the years of AGOA eligibility. The erosion of preferences, particularly the expiration of the MFA, has lessened successes in the latter group.

In the long term, the AGOA’s impact on exports could support the transformation of economies as long as there is diversification of exports into nonfuel sectors such as manufacturing and agroprocessing. The variation in the trade impacts is largely explained by infrastructure, institutions of legal frameworks, ease of labor market regulations, and a sound macroeconomic environment including stable exchange rates and low inflation. The results suggest that preferential market access granted to Sub-Saharan African countries has the potential to foster their economic transformation,

conditional on changes in the fundamental institutions that govern legal frameworks including contract enforcement and property rights protection.

However, preferential access through PTAs such as the AGOA is not a panacea. The same underlying factors that explain the success of countries in other spheres of economic enterprise are critical. Sound macroeconomic policies to maintain a stable and competitive exchange rate, low inflation, and improvement in the quality of infrastructure (especially ICT) provide the underpinnings that are necessary to allow the economies to take advantage of the export opportunities provided by the AGOA. Reforms to improve business should focus more on improving the quality of the judiciary, infrastructure, and macroeconomic stability. In part, this approach contrasts with the widespread push on the World Bank’s Doing Business indicators, which are focused on more-general business climate interventions. The study suggests the need for further disaggregated analysis of changes in exports, by product category, under similar PTAs.

As for either redesigning the next generation of the AGOA and other PTAs or reshaping existing ones, the United States and other Organisation for Economic Co-operation and Development countries could consider incorporating policy commitments along with preferential access. Commitments to reforms across a range of areas to create an enabling environment for private investment and trade could enhance export capacity. To that end, we suggest that PTAs be reinforced with specific reform-based eligibility criteria. PTAs should be integrated with other efforts to deepen trade and investment between Sub-Saharan African countries and the United States. For example, integrating the AGOA with foreign aid policy instruments would help to address the structural challenges limiting export capacity.

Efforts to ease supply constraints and support the integration of African economies into global trade require the augmentation of quota-free, tarifffree preferential agreements with additional instruments to strengthen the capacity and competitiveness of the region’s firms. Recent initiatives such as the Compact with Africa—an effort of the Group of Twenty (G-20) to promote private investment in the region by focusing on improving the business environment, building infrastructure, and promoting effective regulations and institutions—seem to be in line with this comprehensive approach. Furthermore, expansion of quota-free, tariff-free access to the products in which most African countries have comparative advantage, such as agriculture and relevant manufacturing, may expand the benefits for African firms. There is also an urgent need to combine aid with trade to maximize the gains from preferential access.

In addition, in line with the World Trade Organization’s goal of providing support to LMICs, high-income economies need to maintain the unilateral concessions provided under the special and differential treatment. This requires reversing the recent trends toward greater reciprocity in traditionally nonreciprocal trade agreements including the AGOA.