Aid for trade and international transactions in goods and services

Abstract

The empirical literature on aid for trade (AfT) mainly considers its effects on merchandise trade and investment. In this paper, we provide an in‐depth analysis of the relationship between AfT and trade in services using both aggregate and bilateral data. We find a statistically weak effect of AfT on both goods and services trade in our aggregate analysis once we account for endogeneity in the AfT–trade relationship. In contrast, the bilateral analysis suggests that AfT, in particular that allocated to services activities, especially economic infrastructure, has a positive effect on recipients’ merchandise exports to donor countries. This novel finding is robust across different lag structures and provides evidence of complementarities between services AfT and goods trade.

Heterogeneous effects of Aid‐for‐Trade on donor exports: Why is Japan different?

“…Analyzing gross AfT commitments, Pettersson and Johansson (2013) found an elasticity of 0.09, while Hühne et al (2014) obtained an elasticity of 0.03 for the total donor exports (rather than bilateral donor exports). In contrast, Hoekman and Shingal (2020) found negative AfT‐donor export elasticities for both goods and services.…”

Mode 4 restrictiveness and services trade

“…The empirical specification and choice of explanatory variables are motivated in existing literature (Cali & te Velde, 2011 ; Martínez-Zarzoso et al, 2017 ; Hoekman & Shingal, 2020 ). The control vector, , comprises a measure of country size - the log of population ( ); a measure of geographic distance to global markets - the log of market penetration ( ) computed as a distance ( ) weighted measure of other countries’ GDP ( ) i.e.…”

Aid for Trade Flows and Recipient-Countries’ Integration into the World Market for Services Exports: Do Merchandises Exports and Foreign Direct Investment Inflows Matter?

“…The latter has shown a mixed evidence, i.e., a positive or weak effect of AfT flows on trade performance in recipient-countries (see Cadot et al 2014 and OECD-WTO, 2017 fora detailed literature review on this matter). The majority of those studies have looked at the effects of AfT flows on trade in goods, notably export of goods, while very few studies have investigated the effectiveness of AfT flows with respect to services exports (e.g., Ghimire et al, 2013;Hoekman and Shingal, 2019;Martínez-Zarzoso et al 2017). Ghimire et al (2013) have used aggregated data and the seemingly unrelated regression (SUR) approach to investigate the effect of sectoral AfT flows (i.e., AfT allocated respectively for the promotion of the agriculture, manufacturing and services sectors) on sectoral exports (i.e., exports of agricultural products; manufacturing exports; and services exports) in recipient-countries.…”

“…In other words, total AfT flows have exerted a weak effect on services exports. The recent work by Hoekman and Shingal (2019) is interesting in that it has used both aggregate and disaggregated data (i.e., bilateral data) to examine the effect of AfT flows, including both total AfT flows and two major components of the latter (AfT for the services sector and AfT for other sectors) on both exports and imports of goods and services. The authors have used the two-stage least square (2SLS) instrumental variable approach, the Generalized Method of Moments (GMM) estimator and the Poisson pseudo-maximum likelihood (PPML) estimator.…”

“…Thus, the current paper departs from previous studies in three ways. First, it considers the effect of AfT flows on the recipient-countries' share of services exports in the world services exports, rather than on the value of services exports as in Martínez-Zarzoso et al (2017) and Hoekman and Shingal (2019). Second, it adds to the few above-mentioned studies by investigating two mains channels through which AfT flows can affect recipient-countries' integration into the world market of services exports, namely goods exports and FDI inflows.…”