The effect of World Bank trade adjustment assistance on trade and growth, 1987-2004: Is the glass half full or half empty?

•We study trade reform, growth, and World Bank trade adjustment assistance in developing countries.•Our analysis differentiates a group of countries that received trade-adjustment loans vis-à-vis a non-recipient group.•Trade assistance is associated with higher growth, 0.2% on real GDP/capita, 5.0% on import, and 2.5% on export, 3 to 5 years after reform.

This paper studies the association between trade reform, growth, and trade adjustment assistance in a sample of developing countries that underwent trade reforms during 1987-2004. Our analysis explicitly differentiates between a group of countries that received trade adjustment loans from the World Bank and a non-recipient group. The results suggest that trade adjustment assistance is positively associated with economic growth after trade reform in the medium to long run. In comparison to a pre-reform period and to the non-recipient group, the recipient countries registered 0.2 percent higher growth of real GDP per capita, 5.0 percent higher import growth, and 2.5 percent higher export growth over a period of three to five years after trade reform.