Does Foreign Aid Promote Trade? Evidence from Some Selected African Countries

Will aid given to specific sector promote growth? Will bilateral aid be more effective than multilateral aid in export promotion? This paper fills a gap in the literature by studying the implications of aid channeled specifically to trade and export oriented growth. Many African Countries look towards increase in trade driven growth as a means of improving living standards and boosting growth of their economies. Aid given to trade in desperately poor countries can be of tremendous advantage to such countries. We investigate some peculiar components of temporal self limiting aid (often referred to as development assistance) to sectors that can affect trade in developing countries. Aid to four sectors was found to have significant impact on trade although the presence of natural resources tends to reduce the effectiveness of aid in promoting trade. Institutions and government economic policies were also found to be weak in the African countries in our sample reducing aid overall effect on trade.