Is Aid for Trade Related to Trade Inclusivity in African Countries?

This article investigates the association (and not causality) between Aid for Trade (AfT) flows and trade inclusivity in African countries. Trade inclusivity is defined in terms of countries’ catch-up with developed countries in terms of manufactured exports, and therefore, measured for different degrees of manufactures, including primary goods (PRIM); labor-intensive and resource-intensive manufactured exports (LAB); low-skill and technology-intensive manufactured exports (LOW); medium-skill and technology-intensive manufactured exports (MED); and high-skill and technology-intensive manufactured exports (HIGH). The analysis uses 32 African countries (of which 17 Least developed countries - LDCs) over the period from 2003 to 2021. It applies the Seemingly Unrelated Regression estimator that allows uncovering the short-term association (within-country association) and additional long-term equilibrium association (between-country association) between AfT flows and the indicators of trade inclusivity. The empirical findings indicate that over the full sample, AfT interventions are positively associated with LOW, MED, and PRIM, with their largest long-term positive association being on LOW, followed by MED and PRIM. However, the long-term associations between total AfT and the indicators of trade inclusivity are slightly different in LDC and NonLDC African countries. Moreover, AfT interventions are associated with a greater inclusivity in terms of low-skill/and medium-skill and technology-intensive manufactured exports in African countries that improve their productive knowledge, and face higher trade costs.