Aid for Trade and Employment in Developing Countries: An Empirical Evidence

Abstract

This article examines the employment impact of Aid for Trade (AfT) flows to recipient countries. The analysis has used an unbalanced panel dataset comprising 126 countries, of which 42 Least developed countries (LDCs) over the period 2002–15. Based on the two‐step system Generalized Methods of Moments approach, the empirical analysis shows that over the full sample, AfT has exerted a positive and significant effect on total (male and female) employment share, as well as on female employment share, but no significant effect on male employment share. However, these effects are not the same in LDC economies versus non‐LDC economies.

Aid for trade initiative 16 years on: lessons learnt from the empirical literature and recommendations for future directions

“…Most studies have involved 100 and more countries [e.g. 120 countries in Lee and Ries (2016); 126 in Gnangnon (2018a); 108 countries in Gnangnon (2020b); 113 countries in Lee and Kim (2020)]. There was even a study that involved only one country, namely, the Case of Nepal (Brazys and Elkink, 2020).…”

“…AfT for economic infrastructure has been observed to have the dominant beneficial impact on export growth (Calì and te Velde, 2011; Vijil and Wagner, 2012), overall employment diversification (Gnangnon, 2018d), female employment enhancement Gnangnon, 2018a) and merchandise exports (Hoekman and Shingal, 2020; and Gnangnon and Ramirez, 2020). On the other hand, AfT for trade policy and regulations has also been found to have a significant impact in reducing services trade (Martínez-Zarzoso et al , 2017; Hoekman and Shingal, 2020; Gnangnon and Ramirez, 2020).…”

“…Gnangnon (2018a) performed the first evaluation of the AfT–employment nexus in a sample of 126 recipient countries between the years 2002 and 2015. The two-step GMM analysis revealed that AfT produced a significantly positive effect on the overall employment, as well as female employment; however, no significant effect on male employment was reported.…”

Aid for Trade Flows and Wage Inequality in the Manufacturing Sector of Recipient-Countries

“…Thus, these inflows not only enhance competitiveness of the existing small and medium enterprise (SMEs) but also promote the emergence of new SMEs, thereby developing self-employment and allowing previously unemployed or underemployed workers to earn income (or wage). Given the large pool of less skilled unemployed workers in many developing countries, the employment generated by AfT flows (e.g., Gnangnon, 2018b;2019a) reduces wage inequality between high-skilled and low-skilled workers, including in the context of greater trade policy liberalization. However, if thanks to greater trade liberalization AfT flows promote technological changes in recipient-countries, these resource inflows can eventually lead to a widening of wage inequality in the manufacturing sector of recipient-countries, considering the positive wage inequality effect of SBTC.…”

Aid for Trade and services export diversification in recipient countries

“…The effectiveness of AfT flows has also been evaluated with respect to several macroeconomic indicators in recipient countries. These include trade policy and tariff policy volatility (e.g., Gnangnon, 2018;Gnangnon, 2019b;Hoekstra & Koopmann, 2012), export product diversification/economic complexity (e.g., Gnangnon, 2019cGnangnon, , 2019dKim, 2019), reduction of the digital divide (e.g., Gnangnon, 2019e); whether the launch of the AfT initiative have genuinely increased resource flows (e.g., Gnangnon, 2019f); submission of trademarks applications (e.g., Gnangnon, 2019g); employment promotion (e.g., Gnangnon, 2019h) and employment diversification (e.g., Gnangnon, 2019i); trade tax revenue (e.g., Gnangnon, 2016); and FDI inflows (e.g., Lee & Ries, 2016;Ly-My & Lee, 2019). To the best of our knowledge, among those studies, in particular the ones that have looked at the effect of AfT on recipient countries' trade performance, only four studies (Ghimire et al, 2013;Gnangnon & Ramirez-Ramirez, 2020;Hoekman & Shingal, 2020;Martinez-Zarzoso et al, 2017).…”