The Effect of Aid-for-Trade on Trade Openness, Trade Flows, and Exports

Abstract

Previous research has highlighted the export increases that the Aid-for-Trade foreign aid program has precipitated in aid recipient countries. Here I argue that trade openness is the real variable of interest to measure if Aid-for-Trade is accomplishing its goal to remove supply and trade related barriers particularly in least developed countries. I run gravity model regressions on directed dyadic data of donor-recipient country pairs between 2002 and 2019. The data analysis for Aid-for-Trade allocations from the US, UK, Germany, France, and EU to 45 states in Sub-Saharan Africa does not support that Aid-for-Trade is increasing trade openness, export growth, or bilateral donor-recipient trade flows. This suggests that more Aid-for-Trade funding should be allocated to the neediest countries or that a new aid program or development program should be implemented.