The Role of Aid for Trade in the European Union’s Development Policy

Abstract

Aid for Trade is a new international program to help developing countries meet the challenges of the multilateral trading system and benefit from the liberalization process. The European Union as the largest aid provider in the world is among the donors which has accepted this program and attempts to build in its development policy. The paper overviews the EU’s development policy and its effectiveness, and then it presents how the Aid for Trade can be integrated into it and contribute to the improvement of the development activity. The empirical analysis investigates how the Aid for Trade program contributes to the trade expansion of the EU with the developing countries. The results show that regarding the Aid for Trade, only the assistance on economic infrastructure has significant impact on the trade flows between the EU and the investigated developing countries, therefore assistance on economic infrastructure is the driving force in the Aid for Trade activity of the EU. Furthermore, our results show that the non-ACP countries can benefit from the Aid for Trade in a larger extent than the ACP countries regarding its impacts on the total trade with the EU.

Keywords: Aid for Trade, EU development policy, gravity model, ACP countries, international trade

JEL Classification: F13, F35, O19