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Surmounting Africa’s Trade Capacity Constraints: An Assessment of the Effectiveness of the Aid for Trade

Stephen Karingi and Vincent Leyaro, UNECA

Africa has consistently underperformed both in trade and economic growth relative to other developing countries. Against this reality, there is concensus among the international community that Aid for Trade is one way through which developing countries, particularly African ones can be assisted to overcome their binding trade constraints and ensure their effective participation in the global trading system. Yet, despite its importance, it is still an open question on how effective Aid for Trade is in improving trade-related outcomes. While there are several studies that have looked at the rationale of Aid for Trade, there is hardly any quantitative empirical evidence on its impact; especially for Africa, the most marginalized region in the world. This paper is one amongst few stabs to fill this gap on the effects of Aid for Trade on trade capacity constraints and trade performance outcomes in the case of Africa. Using data on specific categories of aid for trade, which is matched with specific desired trade-related outcomes, and applying ex post econometric analysis, the study assesses whether Aid for Trade in Africa has had any significant impact. The findings of this study seems to suggest that aid for trade in Africa, controlling for other factors, matters both for addressing trade capacity constraints and promoting trade. The study finds that Aid for Trade reduces cost of trading, promotes export diversification as well as improving Africa’s trade competitiveness. This therefore has serious policy implications for Africa as a whole, and individual countries in particular if they are to benefit from trade reforms.