The 2013 report Aid for Trade at a Glance: Connecting to Value Chains analyses the strategies, priorities, and programmes from the public and private sectors in developing and developed countries to connect developing country suppliers to value chains. The report suggests that the increasing fragmentation of production processes offers developing countries new trading opportunities, but also present risks. Value chains reinforce the rationale for keeping markets open and highlight the costs of burdensome procedures that create “thick borders”.

There is a general consensus in the economic literature that strong links exist between trade, economic growth and poverty reduction. Countries that have embraced an outward-oriented development strategy, with trade liberalisation at its heart, have not only outperformed inward-looking economies in terms of long-term aggregate growth rates, but have also succeeded in lowering poverty rates and registering improvements in other social indicators. There are many channels through which trade-induced growth leads to poverty reduction. Indeed, exports act as the conduit through which countries exploit their comparative advantage, improve their overall efficiency and productivity, and enable industries to employ their resources more efficiently and profitably. These factors expand demand, spur consumption, and reduce risks associated with reliance on the domestic market. They also increase employment in labour-intensive sectors and raise wages and standards of living. Imports permit countries to gain access to a wider range of goods and services and allow local firms to benefit from more, cheaper and newer technologies that increase productivity and competitiveness (OECD , 2011).

This chapter discusses how the evolving trade and development context is shaping aid for trade. It illustrates how partner countries, donors and providers of South- South trade-related co-operation are using aid for trade to assist developing countries to enter (and establish their own) value chains. Using the findings from the OECD /WTO questionnaire responses, the chapter provides a broad overview of how aid-for-trade policies, priorities and strategies are evolving. It investigates how much resonance value chains have in establishing developing country objectives, and the extent to which value chains are considered in the programmes of donor agencies and providers of South-South trade-related co-operation. Partner countries are focusing on how they can reduce the thickness of their borders, improve the business environment, and create conditions that will assist their firms to connect to regional and global value chains. Donors are responding to these priorities. They are putting more emphasis on public-private co-operation, and are adapting their programmes to target-specific sectors and supply chains. Providers of South-South trade-related co-operation are continuing to scale up their support to enhance South-South trade.

This chapter provides a comprehensive overview of aid-for-trade flows, ODA commitments and disbursements, trade-related Other Official Flows (OOF) and South-South trade-related co-operation. It examines aid-for-trade flows using data from the OECD Creditor Reporting System (CRS), complemented by findings from the OECD/ WTO monitoring survey. It examines recipients and providers of assistance, the financial terms of assistance, and the outlook for aid for trade. In the context of the economic crisis in many OECD member countries, aid for trade (scaled up since 2005) has for the most part been maintained. Aid-for-trade flows declined in 2011, with decreasing support for infrastructure, particularly in Africa. Least developed countries (LDCs) experienced a fall in funding, but they did not bear the brunt of the decline. The flows indicate a shift in funding towards private sector development and value chain promotion. Consequently, flows to meet trade objectives in sectors such as agriculture, industry, and business services are continuing to increase.

This chapter addresses how value chains offer a path to economic development. Based on the findings from the 2013 OECD /WTO survey, it assesses the resonance that value chains have in the aid-for-trade priorities and strategies of partner countries, bilateral and multilateral donors, and providers of South-South trade-related co-operation. The analysis in this chapter of the agri-food, ICT, textiles and apparel, tourism, and transport and logistics value chains highlights that developing country suppliers are integral to these value chains – and that developing countries use their participation to achieve growth, employment and poverty reduction objectives. The responses to the OECD-WTO questionnaire highlight that there is much scope to improve these countries’ participation. Many developing countries pay a competitiveness penalty due to inefficient border procedures, high tariffs and non-tariff barriers that unnecessarily constrain trade in goods or services; restrictions on the flow of information; impediments to foreign direct investment (FDI); and restrictions on the movement of people. The challenge for developing countries is to design and implement broad strategies that tackle these key barriers to integration and upgrading in value chains.

This chapter shows that regional aid for trade has a critical role to play in boosting the participation of particularly low income and least developed countries in regional production networks, and in enabling them to connect and move-up value chains. The chapter highlights that one of the main motivations of the trend towards regional integration is the need to reduce barriers in regional production networks. Barriers to trade, bureaucratic bottlenecks, and infrastructure deficiencies reduce the attractiveness of countries as spokes in the hubs of the production networks. Regional aid-for-trade programmes – which have increased significantly since the 2002-05 baseline – are an effective means to address these constraints. The chapter highlights that while regional aid-for-trade programmes are inherently complex because of the need to involve and coordinate multiple governments, their various agencies and a multitude of private stakeholders, they constitute a cost-effective approach to helping countries achieve their trade and development objectives.

This chapter explores the effectiveness of aid for trade in promoting trade – both exports and imports – and conditions which tend to make it most effective. The review provides abundant evidence to suggest that aid for trade is indeed broadly correlated with increases in trade. Aid for trade works best when it is focused on reducing the costs of trading through improvements in infrastructure, trade facilitation, trade-related public institutions (such as customs, standards administration, and export promotion), and polices (including eliminating policy barriers to competition). Aid for trade – in varying forms – directed to low income countries is particularly helpful in promoting trade. Analysis in this chapter suggests that aid for trade destined to low and lower-middle income countries is likely to have a high pay-off. Typically, one dollar invested in aid for trade is associated with an increase of nearly USD 8 of exports from all developing countries – while one dollar of aid for trade to International Development Association (IDA)-eligible poorest countries amounted to US 20 in new exports and to USD 9 for all low and lower-middle income countries.

Much has been achieved since the start of the Aid-for-Trade Initiative in 2005. Previous Global Reviews of Aid for Trade and editions of Aid for Trade at Glance have clearly shown that aid for trade is bettering the lives of many men and women in developing countries. Comprehensive monitoring has provided clear evidence that the Initiative has resulted in the prioritisation of trade objectives in development strategies and has galvanised donor support to tackle the bottlenecks that undermine the ability of producers in developing countries to exploit regional and global market access opportunities. Aid for trade is helping developing countries tap into the power of markets and connect to new growth poles in the global economy. The aid-for-trade case stories (OECD / WTO, 2013) also paint an encouraging picture of numerous donor supported, trade-related projects and programmes that are delivering a wide range of tangible results in terms of trade performance, private investment and employment creation in a large number of developing countries. The 2013 joint OECD / WTO monitoring exercise described in this publication highlights that these positive trends are continuing.

According to the WTO Task Force on Aid for Trade, projects and programmes are part of aid for trade if these activities have been identified as trade related development priorities in the partner country’s national development strategies.