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Does Aid for Trade Really Improve Trade Performance?

Working paper

Written by Dirk Willem te Velde, Massimiliano Cali

Working paper

Although the concept of aid for trade has quickly gained prominence among aid donors as well as aid recipients, relatively little is known about its impact on trade-related performance. This paper uses statistical evidence to examine the effects of aid for trade on the costs of trading and on the level of and changes in exports. Using data on a large subset of developing countries over time, we find that aid for trade facilitation reduces the costs of trading. We also use a novel identification strategy to compute the impact of aid to economic infrastructure and to productive capacities on exports. The results of this analysis suggest that both aid to economic infrastructure and aid to productive capacity have a positive and significant impact on exports. But in the case of the latter the effects seem to be driven by an allocation skewed towards already well performing sectors. The sectoral analysis reveals that aid to infrastructure is particularly beneficial for mining and manufacturing exports, while it has no effect for tourism and a marginally positive impact in food exports.

Massimiliano Cali and Dirk Willem te Velde