Binding Constraints to Trade Expansion: Aid for Trade Objectives and Diagnostics Tools

Estimating the Constraints to Trade of Developing Countries

“…As indicated in Hallaert and Munro (2009), there is strong empirical evidence that export concentration has a negative impact on economic growth. This is due in part, to the fact that it is more difficult to face the volatility of international markets when the export basket is limited.…”

“…Building on the conclusions of the reports -Binding Constraints to Trade Expansion: Aid for Trade Objectives and Diagnostics Tools‖ (Hallaert and Munro, 2009) and -Increasing the Impact of Trade Expansion on Growth: Lessons from Trade Reforms for the Design of Aid for Trade‖ (Hallaert 2010), this report tries to identify and quantify the severity of binding constraints to trade expansion in partner countries as well as the importance the complementary policies that are paramount in maximizing the impact of trade reforms on trade and economic growth. As developing countries trade-related needs are numerous, such quantification is needed to identify the most binding constraints and thus guide the sequencing of reforms and aid-for-trade interventions.…”

“…The methodology used allows us to answer a few questions on the binding constraints that were highlighted in the first two papers (Hallaert and Munro, 2009;Hallaert, 2010), and which are important for the effectiveness of Aid for Trade.…”

“…However, not all observations for all variables are available for all countries and for the complete period. 14 The list of relevant variables was established taking into consideration the lessons from the two preceding papers on binding constraints, namely: (i) the list of potential binding constraints highlighted by the empirical literature as described in Hallaert and Munro (2009) and summarized in Figure 1 and (ii) the compatible and complementary policies needed to make the trade reforms sustainable and increase their impact on economic growth described in Hallaert (2010).…”

“…All policies (and Aid for Trade) helping to build productive capacities are likely to have a large impact. Hallaert and Munro (2009) show that making export diversification one of the main objective of Aid for Trade is economically grounded as literature provides evidence that export diversification helps limit volatility, which has a negative impact on economic growth.…”