Aid for trade initiative 16 years on: lessons learnt from the empirical literature and recommendations for future directions

• DOI: https://doi.org/10.1108/JITLP-05-2021-0025
• Published date: 04 February 2022
• Date: 04 February 2022
• Pages: 79-104
• Subject Matter: Strategy,International business,International business law,Economics,International economics,International trade
• Author: Yakoub Benziane,Siong Hook Law,Anitha Rosland,Muhammad Daaniyall Abd Rahman

Aid for trade initiative 16 years

on: lessons learnt from the

empirical literature and

recommendations for

future directions

Yakoub Benziane,Siong Hook Law,Anitha Rosland and

Muhammad Daaniyall Abd Rahman

School of Business and Economics, Universiti Putra Malaysia, Serdang,

Selangor, Malaysia

Abstract

Purpose –The purpose of this paperis to present a review of empirical evidence on the effectivenessof Aid

for Trade (AfT) inf‌lows and recommendnew areas of interest concerning the initiativeother than its effect on

trade performance.

Design/methodology/approach –This paper reviews a sample of 55 studies over the past 11 years.

Besides, this paper categorisedthe reviewed empirical studies into three groups:the works concentrating on

the trade performance effect; the worksfocusing on other economic factors effect; and the works concerning

the allocation effect of these inf‌lows. This paper also offers a detailed analysis of the multiple empirical

methods,sources of data, coverage of the countries and forms of AfT inf‌lowsused in the reviewed literature.

Findings –Key f‌indings indicatedthat AfT has overall produced a successful impact as reportedby most

studies. Moreover, it has been highlighted that the effectiveness of AfT may differ relying on multiple

indicators: the category of AfT disbursements; income of the recipient country; the recipient country’s

geographical region; the amount of aggregate AfT as well as its main categories; the policy regulation and

institutionalquality of the recipient country; and the degreeof liberalisation in the recipient country.

Originality/value –This paper is special in that it is the f‌irst to publish a comprehensive narrative

analysis of 55 empiricalpieces of evidence on the effectiveness of AfT over the past 11 years.It is also the f‌irst

paper to review the previous literature regarding the effectiveness of AfT inf‌lows on other non-trade

outcomes, as well as trade outcomes in one single study. The outcome of the survey reveals new areas of

interestin the effectiveness of AfT aside from trade performance.

Keywords Aid for trade effectiveness, Trade performance, Export performance,

Export diversif‌ication, Import diversif‌ication, Trade policy, Recipient countries,

Developing countries, Least developed countries, Non-least developed countries

Paper type Literature review

1. Introduction

It has been very well-recognisedthat developing countries face serious internal restrictionto

fully integrate and prof‌it from international trade and investment (Tadesse et al.,2017).

These constraints are usually because of lacklustre public institutions (including

The authors thank the anonymous reviewers and editor for useful comments and suggestions.

Aid for trade

initiative 16

years on

79

Received20 May 2021

Revised31 October 2021

5 January2022

7 January2022

Accepted7 January 2022

Journalof International Trade

Lawand Policy

Vol.21 No. 1, 2022

pp. 79-104

© Emerald Publishing Limited

1477-0024

DOI 10.1108/JITLP-05-2021-0025

The current issue and full text archive of this journal is available on Emerald Insight at:

https://www.emerald.com/insight/1477-0024.htm

formulation of economic policy and regulations and trade agreements negotiation); weak

infrastructure (e.g. roads, information and communications technology and ports);

inadequate capacity of the private sector(i.e. poor access to f‌inance and supply chains); and

the lack of skilled labour (Gnangnon, 2018a).Despite existing efforts, the challenges remain

for the countries to develop and strengthenthe economy (OECD/WTO, 2015).

In an attempt to alleviate the constraints, the World Trade Organisation (WTO), during the

Hong Kong Ministerial Conference in 2005, introduced a new initiative called Aid for Trade (AfT).

As written in Paragraph 57 of the Hong Kong Ministerial Declaration, “the Aid for Trade initiative

aims to help developing countries, particularly least developed countries (LDCs), to build the

supply-side capacity and trade-related infrastructure that they need to assist them to implement

and benef‌it from WTO Agreements and more broadly to expand their trade”(WTO,2005).

Since then, the AfT program has raised substantial f‌inancial support and managed to

encourage participation by a signif‌icant number of countries. About 60 providers (e.g. the

World Bank, Japan, the USA, the EU, Germany, the UK, France, the Asian Development

Bank, the African Development Bank and the Netherlands) have declared their off‌icial

development funds to the Organisation for Economic Co-operation and Development

(OECD) Creditor Reporting System (CRS) and allocated a sum of US$409bn as a form of

off‌icial development assistance (ODA) to f‌inance AfT programs (OECD/WTO, 2019: pages

57;459). These disbursements increased by an average of 9.3% annually from US$14.9bn

during the 2002–2005 baselineperiod to US$42.2bn in 2017 (OECD/WTO, 2019).

The yearly increases in AfT disbursements pose one key question: has the rise in AfT

disbursements enabledrecipient countries to minimise their trade costs, boost their capacity

to trade, strengthen regulatory and administrative processes and construct the trade-linked

infrastructure as written in the agreement outlined by WTO? In other words, “Is Aid for

Trade effective?”In an effort to answer this crucial question, various studies have been

conducted since the establishment of the AfT initiative in 2005 (Calì and te Velde, 2011;

Hühne et al.,2014;Martínez-Zarzoso et al.,2017;Gnangnon, 2018f;Kim, 2019;Ly-My et al.,

2020). Most studies havereported the positive impacts of the initiative.

To the best of our knowledge, Cadot et al. (2014) have displayed a short survey of the

empirical evidence of AfT inf‌luence with exclusive emphasis on its trade performance; this

study is unique in the fact that it intends to extend and update the existing review by

discussing both the old and the most recent empirical evidence pertaining to the AfT

effectiveness; the review presented in this paper focuses on the effect of AfT on not only

trade-related outcomes but also other economic outcomes, thus presenting new areas of

interest relatedto the effectiveness of AfT apart from its impact on trade performance.

The rest of this paper is structured as follows: Section 2 offers a brief overview of the

concept, the categories and the disbursements of the AfT inf‌lows; Section 3 demonstrates

the theoretical and the empirical evidence on the effectiveness of AfT inf‌lows; Section 4

discusses the f‌indings; and Section 5 summarises the f‌indings and outlines the

recommendationsfor future research.

2. A brief background on the aid for trade initiative

2.1 Def‌inition of aid for trade initiative

AfT inf‌lows are parts of the ODA grants, authorised for trade-related projects and programs

(OECD/WTO, 2013). According to the Task Force by WTO (2006a,2006b), “Aid for Trade aims

to enable developing countries, particularly least-developed countries (LDCs), to build supply-

side capacity and trade-related infrastructure that they need, to benef‌it from world trade

agreements and integrate to the world trading system markets and to export more”.An

eff‌icient AfT may boost growth opportunities and alleviate poverty in the recipient countries.

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