Aid for Trade (AfT) has emerged as an important vehicle for assisting developing countries to improve their trade capacity and benefit from the expansion of global markets. These improvements are helping economic growth and job creation, and in doing so they are also helping developing countries to reduce their reliance on aid, enabling them to use trade to generate higher standards of living, and help address global challenges such as food security.
The empirical literature tends to confirm that AfT can be effective in increasing exports and stimulating investment. The impact of AfT varies depending on the type of AfT intervention, the income level and geographical region of recipient countries and the sector to which AfT flows are directed. Aid for trade facilitation and development of trade-related infrastructure has significant positive impacts on recipient countries’ exports. AfT investment in improving trade policy and reform has helped lower the costs of trading.
Given the developmental potential of AfT, a research project led by the ODI in cooperation with ECDPM and DIE has been studying AfT’s effectiveness. The two-year project, a component of Development Progress, has sought to analyse the factors influencing AfT results – what works, why and in what circumstances?
This note summarises the current research and its findings and suggests how the AfT initiative can improve development outcomes.