Aid for Trade Flows and Recipient-Countries’ Integration into the World Market for Services Exports: Do Merchandises Exports and Foreign Direct Investment Inflows Matter?

Sena Kimm Gnangnon,Susana Del Mar Ramirez Ramirez

doi:10.1142/s1793993323500011

Sena Kimm Gnangnon, Susana Del Mar Ramirez Ramirez

Open Access

https://doi.org/10.1142/s1793993323500011

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Abstract

An important literature on the recipient-countries’ export performance effect of Aid for Trade (AfT) flows has focused on the goods side. The few existing studies on the services exports effects of AfT interventions have reached mixed results, reflecting a positive or weak effect. This study aims to complement these few studies by examining the effect of AfT flows on recipient-countries’ share of services exports in the world services exports (‘services export integration’), including through two main channels: their share of merchandises exports in the world merchandises exports (‘merchandises export integration’) and the size of Foreign Direct Investment (FDI) inflows. The empirical analysis, based on a sample of 105 countries over the period 2002–2016, has shown that these two channels definitely matter for the effect of AfT flows on countries’ services export integration. Specifically, by fostering countries’ merchandises export integration, AfT flows can promote their services export integration. Furthermore, promoting FDI inflows enhances the positive effect of AfT flows on countries’ services export integration.

Highlights

It is well admitted that while openness to international trade can provide substantial benefits, such benefits would not accrue to countries that lack the capacity to trade (e.g., Alonso, 2016; UNCTAD, 2016a)
The authors have used the two-stage least square (2SLS) instrumental variable approach, the Generalized Method of Moments (GMM) estimator and the Poisson pseudo-maximum likelihood (PPML) estimator. Their findings are to some extent in line with those of Martínez-Zarzoso et al (2017): while the analysis based on both aggregate and disaggregate data has shown that Aid for Trade (AfT) flows have exerted a weak effect on goods and services trade, the bilateral analysis has revealed that AfT, in particular that allocated to services activities, notably economic infrastructure, has exerted a positive effect on recipients’ merchandises exports to donor-countries
Turning to the components of total AfT flows, we obtain that AfT flows for economic infrastructure affect negatively services export share in least developed countries (LDCs) and NonLDCs alike, while AfT flows for productive capacity building and AfT flows for trade policy and regulation affect positively LDCs’ services export integration, with the coefficient of the magnitude amounting respectively to 0.26 ( = 0.196+0.0605) and 0.117 ( = 0.0772+0.0400)

Summary

Introduction

It is well admitted that while openness to international trade can provide substantial benefits, such benefits would not accrue to countries that lack the capacity to trade (e.g., Alonso, 2016; UNCTAD, 2016a). The authors have used the two-stage least square (2SLS) instrumental variable approach, the Generalized Method of Moments (GMM) estimator and the Poisson pseudo-maximum likelihood (PPML) estimator Their findings are to some extent in line with those of Martínez-Zarzoso et al (2017): while the analysis based on both aggregate and disaggregate data has shown that AfT flows have exerted a weak effect on goods and services trade (i.e., both exports and imports), the bilateral analysis has revealed that AfT, in particular that allocated to services activities, notably economic infrastructure, has exerted a positive effect on recipients’ merchandises exports to donor-countries. There services exports effect of AfT interventions is non-significant

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Discussion

Conclusion