Regional Perspectives on Aid for Trade

Aid for trade constitutes the most successful initiative that has hitherto emerged from the multilateral trade negotiations under the Doha Development Agenda (DDA). Myriad studies show that international trade is essential in sustaining long-term growth and development and in reducing poverty. However, developing economies face market failures and binding constraints—from infrastructural shortcomings to bureaucratic impediments—that inhibit their ability to exploit fully the benefits attendant in closer economic integration. Recognising this, WTO member-countries, together with their development partners, agreed to dedicate significant development resources to addressing these bottlenecks via aid for trade. Commitment to aid for trade on the part of donors is strong; even as DAC members face great public financial difficulties in the wake of the 2008-2009 Great Recession and the European Sovereign Debt Crisis, they have consistently supported aid for trade over the past decade, with the value of assistance doubling from the 2002-05 benchmark to $32 billion in 2010. A salient aspect of the embrace of outward-orientation on the part of developing countries over the past two decades has been their desire to promote regional cooperation and integration, as evidenced by the explosive growth in bilateral and regional trading agreements in which they now participate. Such cooperation can be bilateral, subregional, regional, or interregional ; South-South or North-South; formal or informal. Whatever the modality, it is clear that developing countries are placing an increased emphasis on regional trade and investment, but with mixed results. In Africa, for example, intra-regional trade has generally underperformed. While the economic literature supports the view that regional cooperation can impart large benefits to developing countries, the ―groundwork‖ of economic integration needs to be in place, e.g., transportation and other infrastructure, human-resource capacity, trade facilitation, and a trade-enabling environment for regional integration. The degree to which countries can benefit from regional integration will be a function of whether they can effectively overcome these constraints. Certainly there is a strong case for regionally-focused aid for trade. Nevertheless, a regional approach to aid for trade is complex and more difficult to mainstream into national planning due to its multi-country nature; governments tend to be hesitant to devote resources to projects and programmes characterised by benefits that they are unable to capture fully themselves. Moreover, while progress has been made in incorporating aid for trade in development planning more generally, mainstreaming regional aid for trade poses important challenges. The objectives of this Study are essentially threefold. …