Aid for Trade flows and Recipient-Countries' Integration into the World Market for Services Exports: Do Merchandises Exports and Foreign Direct Investment Inflows matter?

Abstract

An important literature on the recipient-countries' export performance effect of Aid for Trade (AfT) flows has focused on the goods side. The few existing studies on the services exports effects of AfT interventions have reached mixed results, reflecting a positive or weak effect. The present study aims to complement these few studies by examining the effect of AfT flows on recipient-countries' share of services exports in the world services exports ('services export integration'), including through two main channels: their share of countries' merchandises exports in the world merchandises exports ('merchandises export integration') and the size of foreign direct investment (FDI) inflows. The empirical analysis, based on a sample of 105 countries over the period 2002-2016, has shown that these two channels definitely matter for the effect of AfT flows on countries' services export integration. Specifically, by fostering countries' merchandises export integration, AfT flows can promote their services export integration. Furthermore, promoting FDI inflows enhances the positive effect of AfT flows on countries' services export integration.

Aid for trade initiative 16 years on: lessons learnt from the empirical literature and recommendations for future directions

“…AfT for economic infrastructure has been observed to have the dominant beneficial impact on export growth (Calì and te Velde, 2011; Vijil and Wagner, 2012), overall employment diversification (Gnangnon, 2018d), female employment enhancement Gnangnon, 2018a) and merchandise exports (Hoekman and Shingal, 2020; and Gnangnon and Ramirez, 2020). On the other hand, AfT for trade policy and regulations has also been found to have a significant impact in reducing services trade (Martínez-Zarzoso et al , 2017; Hoekman and Shingal, 2020; Gnangnon and Ramirez, 2020). Kim (2019) and Gnangnon (2018a) have suggested that the AfT for trade policy and regulations produces the most significant positive effect on export diversification and female employment growth, respectively.…”

“…While the majority of previously conducted analyses have focused on exploring the effectiveness of AfT on trade costs and commodity exports, extremely few studies (Martínez-Zarzoso et al , 2017; Hoekman and Shingal, 2020; Gnangnon and Ramirez, 2020) have looked at its impact in respect to services trade. Martínez-Zarzoso et al (2017) analysed the model proposed by Calì and te Velde (2011) using panel quantile regression.…”

Aid for Trade and services export diversification in recipient countries

“…The launch of this initiative has led to numerous studies on the effectiveness 3 of AfT flows in the economies of recipient countries. AfT effectiveness has largely been assessed with respect to recipient countries' trade performance, notably export performance where the latter has been measured by the exports of goods and services (or exports of goods, including manufacturing and primary goods) in constant prices or as a share of the Gross Domestic Product (GDP) (e.g., Bearce, Finkel, Pérez‐Liñán, Rodríguez‐Zepeda, & Surzhko‐Harned, 2013; Busse, Hoekstra, & Königer, 2012; Calì & TeVelde, 2011; Gnangnon, 2019a; Ghimire, Mukherjee, & Alvi, 2013, 2016; Helble, Mann, & Wilson, 2012; Gnangnon & Ramirez‐Ramirez, 2020; Hoekman & Shingal, 2020;Hühne, Meyer, & Nunnenkamp, 2014a, 2014b;Hynes & Holden, 2016; Martinez‐Zarzoso, Nowak‐Lehmann, & Rehwald, 2017; Te Velde & Razzaque, 2013;Vijil & Wagner, 2012). The effectiveness of AfT flows has also been evaluated with respect to several macroeconomic indicators in recipient countries.…”

“…These include trade policy and tariff policy volatility (e.g., Gnangnon, 2018; Gnangnon, 2019b; Hoekstra & Koopmann, 2012), export product diversification/economic complexity (e.g., Gnangnon, 2019c, 2019d; Kim, 2019), reduction of the digital divide (e.g., Gnangnon, 2019e); whether the launch of the AfT initiative have genuinely increased resource flows (e.g., Gnangnon, 2019f); submission of trademarks applications (e.g., Gnangnon, 2019g); employment promotion (e.g., Gnangnon, 2019h) and employment diversification (e.g., Gnangnon, 2019i); trade tax revenue (e.g., Gnangnon, 2016); and FDI inflows (e.g., Lee & Ries, 2016; Ly‐My & Lee, 2019). To the best of our knowledge, among those studies, in particular the ones that have looked at the effect of AfT on recipient countries' trade performance, only four studies (Ghimire et al, 2013; Gnangnon & Ramirez‐Ramirez, 2020; Hoekman & Shingal, 2020; Martinez‐Zarzoso et al, 2017). Ghimire et al (2013) have shown that sectoral AfT flows are positively associated with relevant sectoral exports, that is, AfT for the services sector has been associated with higher services exports.…”

“…However, services exports have been weakly affected as the aforementioned positive effect applies primarily to goods exports rather than to services exports. Gnangnon and Ramirez‐Ramirez (2020) have uncovered empirically that AfT flows influence positively recipient countries' share of services exports in the world services exports when these resources inflows are associated with the rise in the share of merchandises exports in the world merchandises exports, as well as when they promote FDI inflows. The analysis by Hoekman and Shingal (2020) has suggested that among AfT categories, only AfT allocated for the build‐up of economic infrastructure (notably transport and energy) has induced higher volumes of services trade.…”