Effect of Aid for Trade Unpredictability on Trade Policy in Recipient-Countries

Abstract

This article examines the effect of the unpredictability of Aid for Trade (AfT) flows on trade policy in 124 recipient-countries, of which 42 are least developed countries (LDCs), over the period 2002–2016. The analysis shows that while AfT flows exert a positive effect on trade policy liberalisation, AfT unpredictability induces the adoption of restrictive trade policies. These results apply to LDCs and other countries, although the magnitude of the negative effect of AfT unpredictability on trade policy liberalisation is higher for LDCs than for other countries. Furthermore, AfT unpredictability reduces the positive trade policy liberalisation effect of AfT flows. JEL: F13, F14, F35