Policies to promote trade

SDG indicators
SDG target 8.a: Increase Aid for Trade support for developing countries, in particular least developed countries, including through the Enhanced Integrated Framework for Trade-related Technical Assistance to Least Developed Countries.
SDG indicator 8.a.1: Aid for Trade commitments and disbursements (Tier I)

What is Aid for Trade?

Aid for Trade helps developing countries achieve economic growth and alleviate poverty through trade. The support is intended to address trade barriers and limitations so that developing countries can more effectively engage in global trade, benefit from trade and reduce trading costs. The Aid for Trade initiative was launched at the 2005 WTO Ministerial Conference in China, Hong Kong (SAR) (WTO, 2015). Aid for Trade also assists countries in analysing, implementing and adjusting to trade agreements and building the supply-side capacity and infrastructure they need to compete internationally. The assistance is targeted at enhancing national trade policy and regulations, developing infrastructure and building productive capacity (UNCTAD, 2016, Target 8.a).

International trade constitutes a powerful source of economic growth that allows countries to concentrate their production of goods and services to where they have a comparative advantage (specialization) and exchange these products on the world market for other goods and services that are more efficiently produced elsewhere. Historically, export growth has been an important driver of economic development (UNCTAD, 2016). International trade can generate export demand for manufactured products, thereby facilitating growth of the manufacturing sector and giving an impetus to structural transformation (see Sustainable industrialization and technology), an important driver for economic development (UNCTAD, 2016). There is also evidence that export orientation induces a selection process, from which, the most productive firms tend to survive and remain in the market. Firms with a strong export orientation can improve productivity by learning from their cross-border connections and activities. Over time, this knowledge and know-how can spill over to other domestic companies (UNCTAD, 2016).

Academic research and donor evaluation of Aid for Trade programmes support the view of their positive impact (OECD and WTO, 2017). Evaluating the exact effect of Aid for Trade is limited by scarcity of useful data and by methodological challenges (Razzaque et al., 2013). However, one attempt to quantify the association between Aid for Trade and the value of exports from developing countries found the relationship to be eight dollars of exports to every dollar of Aid for Trade and twenty to one for the poorest countries (OECD and WTO, 2013). A recent study on the effectiveness of Aid for Trade suggests that a one per cent increase in Aid for Trade policies and regulations (as a percentage of GDP) induces a 0.15 per cent decline in tariff volatility (Gnangnon, 2019). This study continues a pattern of results in the literature that find Aid for Trade has a more positive impact on countries with higher economic and political stability (OECD and WTO, 2013).

Steady increase in Aid for Trade over the last fifteen years

Both Aid for Trade commitments and disbursements have more than doubled during the last ten years. In 2017, Aid for Trade commitments totalled US$58.0 billion and disbursements US$42.0 billion in constant 2017 prices. The corresponding figures in 2007 were US$28.2 billion and US$21.2 billion. There has been a stable increase in realised disbursements, with increases every year since 2007 except for 2016 (see figure 1).

Figure 1. Aid for Trade flows to all developing economies, 2002-2017
(Billions of US$ in constant 2017 prices)

Source: UNCTAD calculations based on data from OECD (2019b)

The disbursements to LDCs increased from US$5.9 billion in 2007 to US$12.2 billion in 2017 (OECD, 2019b). LDCs’ share of Aid for Trade peaked at just over 30 per cent of the total in 2009, after which it gradually declined to 25 per cent in 2016. In 2017, this share ticked back up to about 28 per cent.

Figure 2. Aid for Trade disbursements by recipient, 2002-2017
(Billions of US$ in constant 2017 prices)

Source: UNCTAD calculations based on data from OECD (2019b)

Asia and Africa remain the primary recipients of Aid for Trade

Developing countries’ total Aid for Trade commitments in 2017 amounted to US$58 billion. Asia and Africa received most of the Aid for Trade, US$22.1 billion and US$21.7 million, respectively. Figure 3 shows the largest Aid for Trade recipient countries.

The top ten Aid for Trade recipients share a little over 35 per cent of total country-specific commitments in 2017. They comprise five Asian countries, four African (Morocco, Kenya, Ethiopia and Tunisia) and one in Europe. Of these, three countries, Bangladesh , Myanmar and Ethiopia are LDCs. To put the 35 per cent in perspective, it should be noted that the total population of these top ten recipients is almost 30 per cent of the total population of developing countries.

Figure 3. Top ten recipients of total aid-for-trade commitments, 2017
(Constant Prices 2017 US$ billions)

Source: UNCTAD calculations based on data from OECD (2019b)

Official development assistance targets trade now more often

The share of Aid for Trade as a total of ODA has increased from 20.1 per cent in 2007 to 26.3 per cent in 2017. The share peaked in 2013 at 27.7 per cent but has plateaued since then (see figure 3). It is particularly important for countries whose trade depends on a narrow export basket. For example, LDCs depend, on average, on only three products for more than 70 per cent of their exports (UNCTAD, 2019).

Figure 4. Aid for Trade, share of net ODA disbursements

Source: UNCTAD calculations based on data from OECD (2019b)

Transport, energy and agriculture receive the majority of Aid for Trade

Aid for Trade also provides support to economic infrastructure (56 per cent in 2017), productive capacity building (42 per cent) and trade policies (3 per cent). Economic infrastructure (transport, communication and energy) has constantly received over 50 per cent of Aid for Trade since 2010 (see figure 4). From 2007 to 2017, the share dedicated to transport and storage has increased from 25.8 to 28.7 per cent of all Aid for Trade, and the share targeting energy has increased from 21.6 to 25.4 per cent.

Aid for productive capacity targets different economic activities that produce goods and services for trade. Agriculture, forestry and fishing together account for about half of the support for productive capacity, while aid targeting banking and financial services takes up another 25 per cent. Aid for banking doubled between 2007 and 2017 from US$2.1 billion to US$4.5 billion.

Figure 5. Distribution between sectors of total Aid for Trade disbursements
(Proportion of total)

Source: UNCTAD calculations based on data from OECD (2019b)

Agriculture receives a notable share of Aid for Trade in Africa

The sectors receiving Aid for Trade disbursements vary across regions. Most of the Aid for Trade disbursements to Asia and Oceania go to transport (37 per cent) and, with energy, these account for over 65 per cent of Aid for Trade to this region. At 26 per cent, agriculture, forestry and fishing receive their largest share of Aid for Trade in Africa. In Europe, on the other hand, banking and financial services receive the largest share of Aid for Trade disbursements (32 per cent), while in America the largest sector is energy (27 per cent).

Figure 6. Aid for Trade by sector and region, 2016
(Proportion of total)

Source: UNCTAD calcutions based on data from OECD (2019b)


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