Do Free Trade Agreements affect Household’s Welfare? Case of peace basket exports through AGOA in Rwanda

The paper endeavoured to ascertain the effect of free trade agreement on household welfare by analysing peace basket exports through AGOA in Rwanda. The study analysed the effect on both macro and micro levels using data collected through an administered questionnaire. On the macro level, the study evaluated export volumes of Rwandan handicraft to different markets in comparison to the US market for over nine years (2002-2010) basing on data from Rwanda customs. AGOA helped weavers and exporters of peace baskets to further expand and access the US market even though there were already plans under way by the government to develop handicraft sector in the country. On the micro level using bivariate and multiple regression analyses; comparisons were made between weavers and non-weavers and between US and Japan market weavers to determine the effect of the Act on the household weaver’s welfare. The sample comprised of 150 respondents; 50 non weavers (control group) and 100 weavers (treated group) in three districts of Kigali province; Nyarugenege, Kicukiro and Gasabo. Results show that non-weavers made to some level a valid control group for weavers (treated group) basing on the sample’s demographic characteristics. Furthermore, results also indicate a significant difference between weavers and non-weavers and between US and Japan market weavers basing on their socio-economic conditions like monthly income earned, hours worked per day, monthly savings, future and current financial situation and future and current provision of food and other basic necessities. This is attributed to a certain extent the prospect of accessing the US market through AGOA that has enabled weavers and exporters to not only earn an income and provision of employment that in return has had an effect on the weaver’s welfare. At the same time they have also benefited from serving a demanding and challenging market that has enabled them to some degree modernize and perfecting their products which has led to creation of new designs, new products and expansion of their production. The study also indicates that it’s not viable to generalize the research results on all weavers due to difference in poverty level in the country particularly between urban and rural areas indicating a need for further research. But all the same, free market access for non-traditional exports with an increasing return to scale to some extent has had a significant effect on household’s welfare and the country at large in a poor resource country with limited and declining land productivity. Relevance to Development Studies The paper adds to knowledge in development studies about the significance of market access to developing countries exports particularly off farm exports in a densely populated country with limited, decreasing efficiency and farm land size per family. The study results could somewhat highlights the importance of market access for non-traditional export as source of sustainable employment and income in order to enhance wellbeing of the poor, reduce income inequality and poverty levels in developing countries. This is in comparison to other measures put in place for development especially advancing the service sector given a high prevailing rate of illiteracy or agriculture sector whose products are greatly protected on the international market especially in developed countries yet it employs the biggest population mainly the poor in developing countries. Therefore, the study may be of great importance to a country like Rwanda with a vision 2020 target of reducing its population to 50% in agriculture sector yet has a high illiteracy rate.