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

Abstract

Purpose The purpose of this paper is to present a review of empirical evidence on the effectiveness of Aid for Trade (AfT) inflows and recommend new areas of interest concerning the initiative other than its effect on trade performance. Design/methodology/approach This paper reviews a sample of 55 studies over the past 11 years. Besides, this paper categorised the reviewed empirical studies into three groups: the works concentrating on the trade performance effect; the works focusing on other economic factors effect; and the works concerning the allocation effect of these inflows. This paper also offers a detailed analysis of the multiple empirical methods, sources of data, coverage of the countries and forms of AfT inflows used in the reviewed literature. Findings Key findings indicated that AfT has overall produced a successful impact as reported by most studies. Moreover, it has been highlighted that the effectiveness of AfT may differ relying on multiple indicators: the category of AfT disbursements; income of the recipient country; the recipient country's geographical region; the amount of aggregate AfT as well as its main categories; the policy regulation and institutional quality of the recipient country; and the degree of liberalisation in the recipient country. Originality/value This paper is special in that it is the first to publish a comprehensive narrative analysis of 55 empirical pieces of evidence on the effectiveness of AfT over the past 11 years. It is also the first paper to review the previous literature regarding the effectiveness of AfT inflows on other non-trade outcomes, as well as trade outcomes in one single study. The outcome of the survey reveals new areas of interest in the effectiveness of AfT aside from trade performance.

Do Aid for Trade Flows Help Reduce the Shadow Economy in Recipient Countries?

“…AfT ows also help facilitate the import of goods by recipient countries (Hühne et al, 2014), import diversi cation (Gnangnon, 2021a; Ly-My, 2021), and the improvement of the competitiveness of rms operating in the formal tradable sector. In so doing, these capital in ows enhance rms' performance in terms of export of goods and services (see the literature review of Benziane et al 2022), induce greater export product diversi cation (e.g., Gnangnon, 2019a,b;Kim, 2019), promote services export diversi cation (e.g., 2021b), generate higher employment opportunities in recipient countries (Gnangnon, 2019c), and encourage the diversi cation of employment across the agriculture, industry and services sectors in AfT recipient-countries (Gnangnon, 2020a). All these bene ts of AfT ows could lead rms operating in the informal sector to be incited to move to the formal sector as it becomes more pro table to enter the formal tradable sector.…”

“…These ndings complement the existing works on the determinants of the shadow economy by showing that AfT interventions contribute signi cantly to reducing the size of the shadow economy in recipient countries. Participation in international trade promotes economic growth and development under certain conditions (e.g., Atkin and Donaldson, 2022;Singh, 2010), and AfT interventions help enhance countries' participation in international trade (e.g., Benziane et al, 2022). Especially, AfT ows allow recipient countries to reduce trade costs, upgrade exports, and ultimately reduce the size of the informal sector.…”

Do Aid for Trade Flows Help Reduce the Shadow Economy in Recipient Countries?

“…AfT ows also help facilitate the import of goods by recipient countries (Hühne et al, 2014), import diversi cation (Gnangnon, 2021a;Ly-My, 2021), and the improvement of the competitiveness of rms operating in the formal tradable sector. In so doing, these capital in ows enhance rms' performance in terms of export of goods and services (see the literature review of Benziane et al 2022), induce greater export product diversi cation (e.g., Gnangnon, 2019a,b;Kim, 2019), promote services export diversi cation (e.g., 2021b), generate higher employment opportunities in recipient countries (Gnangnon, 2019c), and encourage the diversi cation of employment across the agriculture, industry and services sectors in AfT recipient-countries (Gnangnon, 2020a). All these bene ts of AfT ows could lead rms operating in the informal sector to be incited to move to the formal sector as it becomes more pro table to enter the formal tradable sector.…”

Aid for Trade is more effective when the trading environment is more predictable

“…Further information can be obtained at: https://www.un.org/ohrlls/content/least-developed-countries (accessed 13 August 2022). 2 Benziane et al (2022) have provided a recent literature review on the effects of AfT flows in recipient countries. 3 See, for example, Donaubauer et al (2016); Gnangnon (2022a); Lee and Ries (2016); Ly-My and Lee (2019).…”