Media Briefings

‘AID-FOR-TRADE’ DOES LITTLE TO HELP THE POOREST COUNTRIES

  • Published Date: April 2014

Aid initiatives intended to raise the participation of developing countries in world trade do little for the recipients that need the most help. According to research by Philipp Hühne, Birgit Meyer and Peter Nunnenkamp, presented at the Royal Economic Society’s 2014 annual conference, middle-income countries, which are less dependent on aid, benefit far more than the poorest countries.

According to the report:

· The World Trade Organization’s ‘Aid-for-Trade’ Initiative successfully promotes trade in both directions between aid donors and recipients.

· A doubling of aid-for-trade would cause exports from the aid recipients to donor countries to increase by 5%.

· A doubling of aid-for-trade would cause exports from the aid donors to the aid recipients to increase by 3%.

· The scheme particularly boosts the exports of middle-income countries, such as those in East Asia and Latin America, most of which are less dependent on aid to help them participate in world trade.

· Aid-for-trade is less effective in promoting the exports of sub-Saharan Africa – even though there is more of a need in that region.

The authors comment:

‘Our research points to important limitations in the effectiveness of ‘Aid for Trade’ in overcoming supply constraints exactly where these tend to be most severe.’

More…

Eight years after the Aid-for-Trade (AfT) Initiative was launched at the World Trade Organization’s (WTO) Ministerial Conference in Hong Kong, Pascal Lamy closed the Fourth Global Review of AfT in July 2013 by stressing the ‘abundant evidence that the large sums mobilized on Aid for Trade are being well-spent’. He also called on the political will of WTO members to better ‘connect the least connected to international trade through value chains’.

Nevertheless, assessments of the AfT Initiative have largely ignored so far that exporters in the donor countries may be among the main beneficiaries.[1] This analysis finds no support for this sceptical view that donors grant AfT primarily to promote their own export interests.

Total AfT proves to be effective in promoting trade in both directions. In quantitative terms, a doubling of AfT would imply that recipient exports to donors increase by about 5% and recipient imports from donors increase by about 3%. Disaggregating AfT reveals that the smallest AfT category aiming at trade facilitation with respect to trade policy and regulation appears to be the most effective.

All the same, the empirical analysis points to important limitations in the effectiveness of AfT in overcoming supply constraints exactly where these tend to be most severe. Strikingly, the significantly positive effects on recipient exports do not hold for the low-income group among aid recipient countries. The initiative rather promotes the exports of middle-income countries, most of which are probably less dependent on aid to overcome hurdles to participation in world trade.

Similarly, AfT is more effective in promoting the exports of East Asia and Latin America than the exports of sub-Saharan Africa – even though the need for AfT seems to be most pressing in large parts of sub-Saharan Africa. This particular region received also a smaller share of AfT compared with other regions (see Figure below).

ENDS

Notes for editors:

‘Who Benefits from Aid for Trade? Comparing the Effects on Recipient versus Donor Exports’ by Philipp Hühne, Birgit Meyer and Peter Nunnenkamp

For further information, contact:

Philipp Hühne, +49-40-6541-2475, philipp.huehne@hsu-hh.de

Birgit Meyer, b.meyer@economics.uni-kiel.de

Peter Nunnenkamp, peter.nunnenkamp@ifw-kiel.de

Romesh Vaitilingam, romesh@vaitilingam.com, +44 7768 661095

Figure: Aid for trade distribution by region

[1] Most of the empirical literature on aid and trade considers aggregate aid flows and trade in just one direction – either from donors to recipients or from recipients to donors. Helble et al. (2012; Aid-for-trade facilitation. Review of World Economics) and Pettersson and Johansson (2013; Aid, aid for trade, and bilateral trade: An empirical study. Journal of International Trade and Economic Development) are notable exceptions.