The impact of aid for trade on horizontal and vertical export diversification

Abstract

This work aims to identify the existing relationship between aid-for-trade flows and export diversification in sub-Saharan Africa and to develop Asia countries. The results of the estimate, conducted by the Generalized Moments Method (GMM) over the period 1995-2019, show a positive impact of Aid for Trade on horizontal and vertical diversification of exports for the entire sample, including positive and significant effects on per capita GDP growth, gross capital formation, commercial freedom, human capital, and population growth. In the sub-Saharan African sub-sample, Aid for Trade positively impacts vertical and horizontal diversification and the other variables, such as GDP by habitat, FDI, gross capital formation, and human capital; on the other hand, in the sub-sample of Asian countries, aid has a negative impact on horizontal and vertical diversification; moreover, GDP, FDI, gross capital formation, human capital, population growth, and inflation have a positive influence. Our study compared to previous studies mainly dealt with the “impact of aid on export diversification” aggregated forms, but this study fills the gaps in the literature by examining the impact of trade aid on diversification. from its vertical and horizontal dimensions and contribute to the improvement of knowledge in this field.

Evaluating the impacts of foreign aid on low-income countries in Sub-Saharan Africa

“…Foreign aid is intended to assist developing countries and should therefore be transitory only assisting countries when necessary and should not be perceived as the primary means of development; rather, a vital complement to recipient countries' domestic plans, strategies, and resources (Mahembe & Mbaya Odhiambo, 2019a;Ozekhome, 2017). Additionally, African nations must enjoy what international political-economic theorists refer to as 'policy space', necessary when selecting trade policies and development priorities (Vellem & Matezo Espoir, 2021). With respect to the three countries, the ineffectiveness of aid is a result of a combination of poor policies and poor aid administration.…”