Does Aid for Trade affect the quality of the environment? Evidence from Aid for Trade recipient countries

Abstract

The positive impacts of Aid for Trade (AfT) have been well examined on various aspects such as trade, trade liberty, inward foreign direct investment (FDI), infrastructure and so forth. However, the environmental effects of AfT have never been examined, while the environmental impact of foreign aid is already confirmed in the literature. To the best of our knowledge, this is the first paper that investigated the connection between AfT and the quality of the environment in recipient countries. Using data from 100 countries from 2003 to 2019 with system generalised method of moment (GMM) estimator, our research results confirmed that AfT has a negative impact on the environmental quality of recipient countries, and we offer further explanations about this. However, the negative effect of AfT on environmental quality can be varied depending on the institutional quality and level of economic development of recipient countries.

The Impact of Aid for Trade on Income Inequality: The Case of Upper-Middle-Income Countries

“…Finally, AfT can attract more foreign direct investment (FDI) to less developed countries (Nguyen et al, 2023), particularly for infrastructure projects. By stimulating economic growth and technology and knowledge transfers, FDI can help these countries' local companies become more productive and internationally competitive.…”

“…In terms of the model above, it predicts that coe cients and are positive and negative, respectively.The present study also tested whether two groups of AfT components can explain income inequality, namely infrastructure-focused AfT and production capacity-focused AfT. FollowingNguyen et al (2023), in Model (2) below, AfT infrastructural funding for improving communication, energy production and supply, storage facilities, and transportation networks is represented by . In Model (3) below, AfT production capacity funding for improving agriculture, forestry, and shing, industry, mining, tourism, banking, and nancial services are represented by .…”