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, 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).Ministerial Conference in China, Hong Kong (SAR)
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 (. Evaluating the exact effect of Aid for Trade is limited by scarcity of useful data and by methodological challenges and WTO, 2017)(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 ) induces a 0.15 per cent decline in tariff volatility (Gnangnon, 2019). This study continues a pattern of results in the literature showing that 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).
The disbursements to (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.increased from US$5.9 billion in 2007 to US$12.2 billion in 2017
Asia and Africa remain the primary recipients of Aid for Trade
In 2017, total Aid for Trade commitments for developing countries amounted to US$58 billion. 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 countries (Morocco, Kenya, Ethiopia and Tunisia) and one country in Europe. Among these, three countries are LDCs, namely Bangladesh, Myanmar and Ethiopia. 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.
Official development assistance targets trade now more often
The share of Aid for Trade in total (UNCTAD, 2019).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 4). 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
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),(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 5). 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.
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 27 per cent, agriculture, forestry and fishing receive the 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).
- AidFlows (2019). Glossary of AidFlows terms. Available at http://www.aidflows.org/about/ (accessed 17 June 2019).
- Gnangnon SK (2019). Effect of Aid for Trade Policy and Regulations on Tariff Policy Volatility: Does Institutional and Governance Quality Matter? Economies. 7(1):6.
- Negin J (2014). Understanding Aid for Trade part one. Available at http://www.devpolicy.org/understanding-aid-for-trade-part-one-a-dummys-guide-20140228/ (accessed 19 June 2019).
- OECD (2019a). glossary of key terms and concepts. Available at http://www.oecd.org/dac/dac-glossary.htm (accessed 15 May 2019).
- OECD (2019b). Aid-for-trade statistical queries. See https://www.oecd.org/dac/aft/aid-for-tradestatisticalqueries.htm (accessed 19 June 2019).
- OECD and WTO (2013). Aid for Trade at a Glance 2013: Connecting to Value Chains. Aid for Trade at a Glance. WTO and OECD Publishing. Geneva and Paris.
- OECD and WTO (2017). Aid for Trade at a Glance 2017: Promoting Trade, Inclusiveness and Connectivity for Sustainable Development. Aid for Trade at a Glance. WTO and OECD Publishing. Geneva and Paris.
- Razzaque MA, te Velde DW and te Velde DW, eds. (2013). Assessing Aid for Trade: Effectiveness, Current Issues and Future Directions. Commonwealth Secretariat. London.
- UNCTAD (2016). Development and globalization: Facts and figures 2016. Available at https://stats.unctad.org/Dgff2016/ (accessed 19 April 2019).
- UNCTAD (2019). UNCTADStat. See https://unctadstat.unctad.org/ (accessed 10 April 2019).
- United Nations (2019). SDG indicators: Metadata repository. Available at https://unstats.un.org/ (accessed 14 May 2019). /metadata/
- WTO (2006). Aid for Trade Task Force – Recommendations of the Task Force on Aid for Trade. WT/AFT/1.
- WTO (2015). Ministerial declaration. WT/MIN(05)/DEC. Hong Kong. 22 December. Available at https://www.wto.org/english/thewto_e/minist_e/min05_e/final_text_e.htm (accessed 14 June 2019).
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