Does Aid for Trade from the North promote South–South trade?

Abstract

Our empirical estimations indicate that Aid for Trade (AfT) granted by OECD donors strengthens the trade relations of recipient countries with other developing countries. By focusing on South–South trade, we mitigate endogeneity concerns that have plagued analyses of trade between recipients and donors of AfT.

Keywords:

• South–South trade
• aid for trade
• aid effectiveness
• OECD donors

JEL Classification:

• F35
• F14

Notes

¹ Hühne et al. (2014, forthcoming) discuss the previous literature on Aid for Trade (AfT) in more detail.

² For details, see http://unctad.org/en/pages/newsdetails.aspx?OriginalVersionID=673

³ Retrieved from http://stats.oecd.org/index.aspx?DataSetCode=CRS1. As usual in the literature on aid effectiveness, we adjust sector-specific aid commitments by the ratio of aggregate aid disbursements over commitments to arrive at estimated disbursements of AfT.

⁴ Retrieved from http://comtrade.un.org/db/default.aspx; http://data.worldbank.org/data-catalog/world-development-indicators and http://www.cepii.fr/cepii/en/bdd_modele/bdd.asp.

⁵ We derive D_it by using the estimated coefficients of a standard gravity model as weights, following Polak (1996). The auxiliary calculation includes a set of dyadic gravity-type variables that would otherwise be lost due to aggregation, such as Dist_ij, which is the distance between recipient i and partner country j. Consequently, D_it fully accounts for the factors shaping the demand of recipient i for imports from j or, respectively, the supply of exports by recipient i to j.

⁶ In US$ of 2012, based on period averages for the period 2010 to 2012.