Does Aid for Trade Enhance Export Performance? Investigating the Infrastructure Channel

• Date: 01 July 2012
• Author: Laurent Wagner,Mariana Vijil
• Published date: 01 July 2012
• DOI: http://doi.org/10.1111/j.1467-9701.2012.01437.x

Does Aid for Trade Enhance Export

Performance? Investigating the

Infrastructure Channel

Mariana Vijil

1

and Laurent Wagner

2

1

INRA, UMR1302 SMART, Rennes and

2

FERDI and CERDI-CNRS, UMR6587, Universite

´

d’Auvergne, Clermont-Ferrand

1. INTRODUCTION

EXISTING empirical literature has demonstrated that trade can be a power-

ful engine for enhancing economic development and poverty reduction

(Winters et al., 2004). Thus, outward-oriented growth has been a popular devel-

opment strategy in low-income countries since the introduction of structural

adjustments plans. However, there are only a few cases where these policies

have effectively succeeded in reducing poverty. Furthermore, as Brun et al.

(2005) note, the evidence is consistent with the claim that poor countries have

been marginalised by the recent wave of globalisation. Also, the share of the

poorest developing countries in global trade has not increased despite the pref-

erential trade schemes offered by their industrialised partners (Huchet-Bourdon

et al., 2009).

Indeed, market access seems not enough for some countries facing internal

obstacles to trade, such as a lack of knowledge, excessive red tape, insufficient

financing and poor infrastructure. Therefore, the international community is

placing an increasing emphasis on the aid for trade (AfT) initiative to assist

developing countries in their attempt to enhance export performance and inte-

gration into the global economy, by targeting their own domestic constraints.

The findings, interpretations and conclusions expressed in this paper are entirely those of the

authors. Mariana Vijil acknowledges funding from the French Development Agency (AFD). With-

out implicating them, the authors thank Chantal Le Moue

¨l, Marilyne Huchet-Bourdon, Patrick

Guillaumont, Ce

´line Carre

`re, Marcelo Olarreaga, Angela Cheptea, Marie-Ce

´cile Thirion, partici-

pants in the PhD seminar held at the UMR SMART in Rennes and into the ‘Agence Nationale de la

Recherche’ aid seminar held at the CERDI in Clermont-Ferrand as well as an anonymous referee

for helpful comments and valuable discussions.

The World Economy (2012)

doi: 10.1111/j.1467-9701.2012.01437.x

2012 Blackwell Publishing Ltd., 9600 Garsington Road,

838 Oxford, OX4 2DQ, UK and 350 Main Street, Malden, MA 02148, USA.

The World Economy

The AfT Task Force defines this initiative as assistance to developing countries

to increase exports of goods and services, to integrate the multilateral trading

system and to benefit from liberalised trade and increased market access. Fur-

thermore, AfT should increase economic growth and reduce poverty while

complementing multilateral trade negotiations. Despite the ongoing debate on

aid effectiveness following the ‘Paris Declaration’ and the Doha Agenda, there

is little evidence about the success or otherwise of previous attempts to support

export development. With this in mind, it seems relevant to assess the impact

of assistance to trade on trade performance.

Starting from a macroeconomic perspective, the literature on the impact of

aid on growth has so far failed to provide strong and convincing results (Rood-

man, 2007; Rajan and Subramanian, 2008), partly because of its effects on

trade via the ‘Dutch disease’ phenomenon related to real exchange rates appre-

ciation. Nevertheless, Adam and Bevan (2006) find that this short-run negative

impact can be offset in the medium term by potential productivity spillovers

created by aid-financed public expenditures. Furthermore, following the work

of Clemens et al. (2004), researchers, in order to avoid the caveats of the aid-

growth nexus, have focused on the impact of sectoral aid on narrower targets

(e.g. school enrolment, infant mortality). As the effect of aid on growth is diffi-

cult, if not impossible, to capture, focusing on more specific outcome variables

appears to be a promising new way of addressing the aid effectiveness issue.

In fact, there are few empirical studies that assess the effectiveness of aid

for trade on trade performance, mainly because of the lack of sectoral data of

sufficient quality and time span. Nevertheless, this kind of approach seems rele-

vant to understanding the various channels through which the various types of

aid operate (Mavrotas and Nunnenkamp, 2007). Among the papers seeking to

quantify empirically the impact of aid for trade on trade flows, Helble et al.

(2009) find that assistance directed towards trade enhances the trade perfor-

mance of recipient countries. They estimate, using a gravity model, that a 1

per cent increase in assistance to trade facilitation could generate an increase in

global trade of about US$415 million. Furthermore, the effect of aid directed to

the ‘Trade Policy and Regulation’ category seems stronger both in significance

and in magnitude, with a particularly high impact on aid recipient’s exports.

Also, this aid category exhibits the highest rate of return with US$697 in addi-

tional trade for every dollar invested. Nevertheless, the gravity model may not

be suitable for testing the effectiveness of aid for trade; there is no reason to

think that a project or programme financed by this assistance (e.g. for roads,

telecommunications) will benefit one direction of trade more than another.

Thus, an estimation using aggregate export flows across partners may be more

accurate.

Cali and te Velde (2011) assess the impact of different types of aid for trade

flows on the economic environment of recipient countries. Using panel data for

2012 Blackwell Publishing Ltd.

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