The effectiveness of aid for trade over time : a thesis presented in partial fulfilment of the requirements for the degree of Master of Business at Massey University, Palmerston North, New Zealand

Abstract

Aid for Trade (AfT) has increased in prominence since its inception owing to its aim of improving the trade performance of developing countries. AfT not only seeks to increase developing countries’ trade volumes, but to also diversify their exports, particularly towards manufactured goods. At the same time, the development community has put considerable emphasis on improving the effectiveness of aid following the Paris Declaration on Aid Effectiveness (2005). The effectiveness of AfT has received much attention from the literature to date, and positive results have been found. However, one question which has not been answered is whether the effectiveness of AfT has improved over time. This study investigates whether AfT has become more effective over time at increasing aid recipient countries’ exports. Using a gravity model for 125 aid recipient countries between 2002 and 2018, this study shows that while AfT is effective, its effectiveness has not improved over the time period of this study. The results of this study also suggest that AfT is not effective in developing countries facing the greatest economic challenges, and may in fact be having a negative impact on export performance for low-income countries and countries in Sub-Saharan Africa. The implication of this is that both donor and aid recipient countries must do more to improve the effectiveness of aid. Until improvements in the effectiveness of AfT to some countries have been made, donor countries must choose to either give AfT to where it is needed most, or where it is most effective.