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Aid for trade: A misdirected initiative?

  • Arne Wiig

Given that the motivation for aid is poverty reduction, I argue that Aid for Trade (AfT) measures need to demonstrate that they are effective and have a potential impact on poverty. The debate about aid for trade measures lacks a focus on the poverty dimension of trade. Trade is an indirect instrument for poverty reduction and in SADC, increasing trade has a low impact on poverty. From a donor perspective, support to sectors such as agriculture, where the poor are located, is therefore more effective than to sectors or activities in which the poor are hardly involved. While the overall motivation for providing aid for trade is poverty reduction, I argue that such aid should only be given if there are market failures, for example in coordination and public goods. Aid for trade is particularly important for countries that already have market access but face supply constraints that restrict their utilisation of this market access (as is mainly the case for SADC countries). In this case, aid and trade might serve as complementary activities. I present new data of AfT to SADC countries. The main finding is that so far AfT has played only a minor role for SADC countries, and its role has not changed significantly during recent years – at least not in terms of disbursement. The disbursement ratio of AfT is low (around 50 %). We do not find any robust relationship between disbursement of AfT among individual SADC countries and documented needs. There is accordingly scope for major improvement in the effectiveness of AfT.

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Paper provided by CMI (Chr. Michelsen Institute), Bergen, Norway in its series CMI Working Papers with number 4.

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Length: 23 pages
Date of creation: 2009
Date of revision:
Handle: RePEc:chm:wpaper:wp2009-4
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  1. Ann Harrison, 2006. "Globalization and Poverty," NBER Working Papers 12347, National Bureau of Economic Research, Inc.
  2. Dollar, David & Kraay, Aart, 2001. "Trade, growth, and poverty," Policy Research Working Paper Series 2615, The World Bank.
  3. Dollar, David & Kraay, Aart, 2002. " Growth Is Good for the Poor," Journal of Economic Growth, Springer, vol. 7(3), pages 195-225, September.
  4. Anderson, Kym & Martin, Will & van der Mensbrugghe, Dominique, 2005. "Would multilateral trade reform benefit Sub-Saharan Africans?," Policy Research Working Paper Series 3616, The World Bank.
  5. Ravallion, Martin, 2004. "Looking beyond averages in the trade and poverty debate," Policy Research Working Paper Series 3461, The World Bank.
  6. L. Alan Winters & Neil McCulloch & Andrew McKay, 2004. "Trade Liberalization and Poverty: The Evidence So Far," Journal of Economic Literature, American Economic Association, vol. 42(1), pages 72-115, March.
  7. SUWA-EISENMANN Akiko & VERDIER Thierry, 2007. "Aid and trade," Research Unit Working Papers 0709, Laboratoire d'Economie Appliquee, INRA.
  8. Alberto Alesina & David Dollar, 1998. "Who Gives Foreign Aid to Whom and Why?," NBER Working Papers 6612, National Bureau of Economic Research, Inc.
  9. Oliver Morrissey, 2006. "Aid or Trade, or Aid and Trade?," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 39(1), pages 78-88, 03.
  10. Aisbett, Emma & Harrison, Ann & Zwane, Alix, 2006. "Globalization and poverty: what is the evidence?," MPRA Paper 36595, University Library of Munich, Germany.
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