Does Aid for Trade Really Improve Trade Performance?

SummaryAlthough the concept of aid for trade has quickly gained prominence among aid donors as well as aid recipients, relatively little is known about its impact on trade-related performance. We use data on a large subset of developing countries for recent years to examine the extent to which various types of aid for trade have helped recipient countries’ trade performance. We find that aid for trade facilitation reduces the costs of trading. Moreover aid for trade has an overall positive and significant impact on exports. This effect is entirely driven by aid to economic infrastructure, while the other main category of aid for trade, aid to productive capacity, has no discernible effect on exports. Its strong positive association with exports at the sectoral level is due to an allocation skewed toward already well performing sectors.