Aid-for-trade facilitation

Abstract

‘Aid for Trade’ is an ongoing and high-profile discussion associated with the Doha negotiations of the World Trade Organization. It also relates to questions of how best to achieve the Millennium Development Goals. Questions remain, however, about whether foreign aid spent on trade facilitation increases trade flows of developing countries. Does it work differently from aid in general? Using detailed data on aid flows from the OECD, the analysis here estimates the relationship between specific types of aid and trade flows, both globally and of the aid recipients. The findings indicate that aid spent on promoting trade is positively associated with global trade. For most types of such aid-for-trade facilitation, it is relatively more strongly associated with recipient exports than their imports. In contrast ‘other’ types of aid are more strongly associated with recipient imports. Based on elasticities estimated over 16 years of trade and aid data for 40 donor countries and about 170 country trading pairs, our results suggest that a 1% increase in aid-for-trade facilitation (of about US$ 220 million in 2008) correlates to about US$ 290 million of additional exports from the aid receiving countries.