Do Donor Countries Benefit from Aid for Trade?

Abstract

Aid for Trade (AfT) has emerged as a significant mechanism for the development of lesser-developed countries by helping them participate in the global value chain. Grants in AfT have gradually increased since 2002 and have been invested in various sectors such as transport, storage, communications and energy among others. With the increase, there have been a myriad of researches on the relationship between AfT and growth or exports of recipient countries. But apart from this view, some researchers argue that AfT may have positive effects on donors’ exports as goodwill of their recipient countries. This research focuses on whether providing AfT influences the donors’ exports specifically considering the characteristics of export goods and geographical environment. For estimation, a gravity model was used and the results indicate that a donor’s AfT has significant relations with exports to their recipient countries. However, the outcome shows different aspects by continent that the donor’s agricultural exports increase when AfT is given to Asia while its non-agricultural exports are significantly positive both in Asia and the Pacific region. Therefore, this study implies that the goodwill effect is applied to only some recipient countries, not in all the recipient countries.

Keywords: Aid for Trade, Aid Effectiveness, Donor’s Exports, International Trade, Tied-aid

JEL Classification: F35, F14, O19