Aid for Trade has emerged as an important vehicle to help the private sector in developing countries to improve its trade capacity and to benefit from the expansion of global markets, which would allow for economic growth and job creation, and help developing countries to move from reliance on aid to the use of trade to generate higher standards of living.
In the current economic climate of uncertain export demand and fluctuating commodity prices, AfT can play an important role in supporting countries to diversify trade and reduce output volatility, particularly by improving productivity and addressing market failures (such as the under-provision of infrastructure).
While growing empirical and qualitative evidence indicates that AfT has a positive overall impact, many individual projects are failing to deliver results.
This Briefing Papers draws on a review that suggests AfT is subject to the same failures of collective action that affect aid in many other sectors. It discusses the success criteria that help to determine the effectiveness of AfT barriers and opportunities, design and implementation, and monitoring and evaluation. It concludes with the following suggestions:
- Demand for specific AfT projects must be driven by the recipient country, and AfT must address barriers to trade in a measurable way.
- Improving understanding of the nature and causes of coordination failures and information asymmetries specific to the political economy of recipient countries and regions, as well as donor agencies.
- Given that trade is, by definition, cross-border, there is a strong economic rationale to strengthen regional institutions as well as for more investment in trans-national corridor approaches.
- Investing in the collection of baseline data and providing measurable outcomes (e.g. port clearance time; trade volumes) would help to address concerns about attribution.