In May 2000, the U.S. Congress passed the African Growth and Opportunity Act which removed import tariffs on almost all goods coming into the United States from 35 sub-Saharan African nations. So far the act seems to be benefiting both sides.
The Wall Street journal notes that U.S. imports of goods from sub-Sharan Africa were 24 percent higher in the first quarter of 2001 than they were in the first quarter of 2000. Clothing imports were up 30 percent over last year. Moreover a few countries saw very large increases in trade, with Senegal and Madagascar more than doubling their exports to the United States.
Meanwhile the United States also benefited with a 23 percent rise in exports to AFrica during the first quarter of 2001 as compared to the first quarter of 2000.
A meeting of the African Development Bank in Spain last month saw officials with that institution calling for even more leveling of trade between Africa and the West. The bottom line is that African countries need sustained economic growth if they are ever to solve their poverty problems, and the best way to promote economic growth is with free trade. The Bank estimates that AFrican nations need a sustained 7 percent rate of growth for 10-15 years to cut their poverty rate in half, but Africa’s overall economic growth rate is stalled at 3.5 percent and per capita average annual income in Africa rests at a dismal $315.
Meanwhile a recently published book by a pair of economists argues that a survey of world economies shows that the main difference between poor and rich economies is largely based on openness too trade. Economists Stephen L. Parente and Edward C. Prescott noted that in many ways even the poorest nations of the world have economic characteristics similar to the richest countries. For example, take national savings rates which are often claimed to be a determinant of national wealth. Savings rates in Africa are just slightly behind those of the United States.
The main difference Parente and Prescott found between successful and unsuccessful economies was lack of barriers to trade, which help promote innovation and the adoption of new technologies. As Virginia Postrel summed up the case for free trade in The New York Times,
The economists argue that the puzzle is explained by local interest groups’ blocking efficient techniques. Free trade’s indirect benefit is that it forces local monopolies to compete, opening countries to the most productive technologies and practices. Governments that commit themselves to free trade agreements are binding themselves not to protect the status quo, even in the face of interest group pressure. “Trade,” Professor Parente says, “is great for getting rid of these vested interests.”
One of the examples Parente and Prescott offer as to how local monopolies can seriously hamper an economy is India’s textile industry. Early in the 20th century Indian textile manufacturers obtained special protection for traditional methods of textile production which limited the number of people per loom and imposed tariffs on forcing textiles. As a result, India’s textile industry stagnated compared to competing nations, such as Japan, who were lifted into prosperity through technological innovation.
Source:
Encouraging signs in first year of African Trade Act. National Center for Policy Analysis, May 23, 2001.
West urged to lift African imports. Flora Botsford, The BBC, May 29, 2001.
Economic scene: wealth depends on how open nations are to trade. Virginia Postrel, The New York Times, May 17, 2001.
Free trade builds and spreads wealth. National Center for Policy Analysis, May 17, 2001.