Effects of aid for trade on poverty, sectoral employment and economic growth in developing countries
According to the OECD Creditor Reporting System (CRS), approximately 60 donors provided a total of 409 USD billion as Aid for Trade (AfT) inflows by 2017, to assist recipient countries in constructing supply-side capability and trade-related infrastructure that they require to broaden their trade...
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| Main Author: | |
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| Format: | Thesis |
| Language: | English |
| Published: |
2022
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| Subjects: | |
| Online Access: | http://psasir.upm.edu.my/id/eprint/114084/1/114084.pdf |
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| Summary: | According to the OECD Creditor Reporting System (CRS), approximately 60 donors
provided a total of 409 USD billion as Aid for Trade (AfT) inflows by 2017, to assist
recipient countries in constructing supply-side capability and trade-related infrastructure
that they require to broaden their trade. Moreover, effective utilization of these inflows
enhances growth, creates job possibilities, and reduces poverty. Despite these large
amounts of AfT inflows these nations continue to experience low growth and employment
rates, in addition to high poverty rates. In light of this, this study aims to assess the
effects of AfT inflows on poverty, sectoral employment shares, and economic growth in
these recipient countries. Two methodologies were used to achieve the stated objectives,
namely the two-step system Generalized Method of Moments (GMM) approach and the
panel Quantile Regression approach.
The sample of the study covered 60 countries for the first and 75 for the third objectives,
while the second objective covered 93 countries. The 2005-2018 time period was applied
for all objectives. The empirical results of the first objective demonstrated that aggregate
AfT inflows including its two categories (AfT for economic infrastructure, for productive
capacity building) have positive impacts on alleviating both poverty headcount and
the poverty gap ratios over the full sample, particularly the high-income recipients. In
contrast, AfT for trade policy and regulations appear to reduce poverty, particularly in
the highest poverty rates for low-income recipients. AfT productive capacity building
appears to reduce poverty rates the most, while AfT for policy and regulations was found
to have the weakest positive impact compared to the categories.
Secondly, regarding the sectoral employment shares, the empirical results revealed that
total AfT, AfT for economic infrastructure, and AfT for productive capacity building
boost both the agricultural and industrial employment shares, particularly the industrial
employment share. This effect is far larger on industrial employment share in countries
that rely the most on the industry in their economy (higher-income recipients). In contrast,
it is only positive in the case of agricultural employment in the countries that rely
the most on agriculture (lower-income recipients). However, AfT for trade policy and
regulations only benefits the industrial employment share, particularly in the low-income
recipients. Furthermore, the AfT interaction with FDI only increases the agricultural employment
rates in the case of the low-income recipients, and the industrial employment
rates in the higher-income recipients.
Lastly, the empirical findings of the third objective suggested the significant effect of
aggregate AfT on the receiver countries’ economic growth, precisely, the lower-income
countries. In terms of its subcategories, AfT for productive capacity building generates
the largest beneficial effect on the economic growth of the receiver countries followed
by AfT for trade policy and regulation, while AfT for economic infrastructure was observed
to have the weakest positive effect. Furthermore, AfT interaction with institutional
variables was found to be negative. However, these coefficients appear to converge
towards positive in the case of countries with better institutional quality (highincome
recipients). Therefore, Donors may consider providing higher AfT notably AfT
for productive capacity buildings, and AfT for trade policy and regulations to improve
the quality of institutions and governance in the recipient countries. Moreover, recipient
countries might also strengthen their institutions and promote good governance. This
would result in a more efficient allocation of AfT inflows. |
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