Economic Paper

2310-1385 (online)
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This series examines current economic issues from a Commonwealth perspective. The titles in the series are technical papers of topical interest to specialists concerned with trade, micro and macroeconomics, development economics and related subjects.

Towards a Quantitative Assessment of Aid for Trade

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Massimiliano Calì, Dirk Willem te Velde
01 Nov 2008
9781848590199 (PDF)

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This Economic Paper presents, for the first time, quantitative evidence of the effectiveness of Aid for Trade, the initiative to promote development by providing resources targeted at boosting involvement in international trade by developing countries. It suggests which types of Aid for Trade measures are likely to be particularly effective.

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  • Acronyms and abbreviations
  • Summary

    Aid for Trade (AfT) has moved up both the aid and trade agendas. There is now a need for quantitative evidence which can be used to identify needs and inform an analysis of how AfT can best be provided.

  • Background and Motivation

    Aid for Trade has moved up both the aid and trade agendas. Several studies have described the rationale for AfT, but it is now time to move beyond the descriptive stage and analyse the needs and design its implementation.

  • The Effectiveness of Aid for Trade

    We first discuss why certain types of aid should produce particular effects on trade, so that we can propose hypotheses and assess the relevance of empirical patterns in the context of Aid for Trade. Table 2.1 identifies potential market and governance failures affecting the development of trade and suggests policy responses to address these failures. It identi fies whether a proposed response could be assisted by an AfT package and what part of the package would be relevant to the task (on the basis of its current classification in the OECD Credit Reporting System (CRS) aid statistics).

  • The Effects of Aid for Trade An Empirical Framework

    We use two broad ways of assessing the impact of AfT: its effect on the costs of trading and on exports.

  • Empirical Results

    Table 4.1 presents the estimation results of the equation for costs of trading (exporting first) in 2008. We focus on this variable because it has an obvious relation to trade, but it is straightforward from a statistical point of view to examine some other indicators as well. The costs of trading variables are not particularly suitable for constructing time series due to data availability, so we focus on one year. We estimate equation (1) for a cross-section of around 120 developing countries.

  • Policy Implications and Future Research

    This paper has a number of key findings. We have argued that Aid for Trade should affect trade directly or indirectly by improving the investment climate in which trade takes place. We found that AfT can have a positive effect on investment climate indica - tors. We found that AfT that falls into the category of trade policy and regulations has helped to reduce the costs of trading, controlling for a number of other factors such as governance generally, being landlocked and income status. This is a key policy finding because it shows that AfT is effective where it aims to be effective (subject, of course, to the quality of reporting by donors to the OECD CRS database).

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  • Expand / Collapse Hide / Show all Abstracts Appendices

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    • Defining ‘Trading Across Borders'

      Doing Business compiles procedural requirements for export ing and importing a standardised cargo of goods by ocean transport. Every official procedure for exporting and importing the goods is recorded – from the contractual agreement between the two parties to the delivery of goods – along with the time and cost necessary for completion. All documents required for clearance of the goods across the border are also recorded. For exporting goods, procedures range from packing the goods at the factory to their depart - ure from the port of exit. For importing goods, procedures range from the vessel’s arrival at the port of entry to the cargo’s delivery at the factory warehouse. Payment is made by letter of credit.

    • Doing Business ‘Trading across Borders'
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