Download Impact of aid for trade on trade costs and December 2015

Impact of aid for trade on trade costs and
trade flows: selected research
December 2015
Bangkok, Thailand
Cosimo Beverelli (ERSD/WTO)
Rainer Lanz (Development/WTO)
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Content
• What is aid for trade?
• Aid for trade data and characteristics of aid for trade flows
• Evaluating the effectiveness of aid for trade
• Aid for trade and trade costs
• Aid for trade and trade flows
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What is aid for trade? - the Aid for Trade Initiative
• Aid for Trade Initiative launched at the WTO Ministerial Conference in Hong
Kong in 2005
• Objective: To help developing countries, in particular LDCs, to build traderelated infrastructure and supply-side capacity
• Additional, predictable, sustainable and effective financing
• Key elements in the operationalization of AFT
•
•
•
•
Strengthening the "demand side”
Strengthening donor "response"
Strengthening the bridge between "demand" and "response“
Strengthening monitoring and evaluation
• Biennial Global Reviews of Aid for Trade
• 5th GR of AFT in 2015: “Reducing Trade Costs for Inclusive, Sustainable Growth”
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What is aid for trade? – aid for trade flows
• Official development assistance (ODA)
• Objective to promote economic development and welfare of developing countries
• Concessional in character with a grant element of at least 25 percent (calculated at
a discount rate of 10 percent)
• AFT is a subset of ODA that fall under four categories
• Trade policy and regulations, economic infrastructure, building productive capacity
and trade-related adjustment
• Other official flows (OOF) are transactions by the official sector which do not
meet the conditions for eligibility as ODA
• Development finance (external financing)
• ODA, OOF, foreign direct investment (FDI), remittances
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Aid for trade data
• Data submitted to the Creditor Reporting System (CRS) of the OECD
Development Assistance Committee (DAC)
• OECD.Stat: http://stats.oecd.org/
• QWIDS (Query Wizard for International Development Statistics):
http://stats.oecd.org/qwids/
• Interface to download data from the CRS
• Predefined queries: http://www.oecd.org/dac/aft/aid-for-tradestatisticalqueries.htm
• OECD data does not cover South-South development cooperation
• E.g. Brazil, India, China and South Africa are not covered
• Alternatives:
• National sources
• AidData: http://aiddata.org/; for China: http://china.aiddata.org/
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AFT flows: commitments versus disbursements
Commitments
60
US$ billion (2013 constant)
50
55.4
53.6
44.0
38.3
40
30
Disbursments
33.2
33.2
25.3
41.6
23.6
20
10
0
2002-05 avg. 2006-08 avg. 2009-11 avg.
2012
2013
Source: OECD-DAC, Credit Reporting System (CRS)
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AFT commitments by category in US$ million (2013 const.)
AFT category
02-05 avg. 06-08 avg. 09-11 avg.
Trade Policy & Regulations
798
1,116
1,411
Trade Policy & Admin. Management
615
713
717
Trade Facilitation
76
193
371
Regional Trade Agreements
80
129
265
Multilateral Trade Negotiations
16
44
20
Trade Education/Training
11
35
38
Economic Infrastructure
13,203
17,710
24,084
Transport and Storage
6,997
10,112
13,251
Communications
647
517
662
Energy Generation and Supply
5,559
7,080
10,170
Building Productive Capacity
11,274
14,326
18,485
Business And Other Services
1,428
2,100
2,059
Banking & Financial Services
1,810
2,594
3,412
Agriculture
4,302
6,208
8,651
Forestry
570
696
1,073
Fishing
284
373
476
Industry
1,927
1,724
2,170
Mineral Resources and Mining
849
408
458
Tourism
106
224
185
Trade-related Adjustment
3.4
35.9
2012
1,335
598
463
230
11
33
30,450
15,533
760
14,158
21,811
1,463
5,031
10,265
1,241
318
2,567
848
77
0.4
2013
1,641
633
673
303
11
21
33,434
18,657
1,044
13,733
20,299
1,818
5,120
9,128
922
448
2,293
418
153
3.9
Total Aid for Trade
53,596
55,378
Source: OECD-DAC, Credit Reporting System (CRS)
25,275
33,155
44,016
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AFT by income group and region in %, 2011-13
Noncountry
specific
14%
LDCs 29%
UMICs
18%
LICs
(other) 3%
Europe 11%
Oceania 1%
Non-region
specific 7%
America
8%
Asia 37%
Africa 36%
LMICs 36%
South &
Central
Asia 23%
Far East
Asia
11%
Other Asia 3%
Source: OECD-DAC, Credit Reporting System (CRS)
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AFT commitments by instrument and donor in %
%
70
Loans (vs. Grants)
Multilateral (vs. Bilateral)
60
50
40
30
20
10
0
2002-05
2006-08
Source: OECD-DAC, Credit Reporting System (CRS)
2009-11
2012
2013
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Share of AFT in development finance
Average share of AFT and trade-related other official flows in development
finance (2010/12)
Aid for trade/Development finance (DF)
Trade-related other official flows/DF
10.6%
6.5%
4.6%
5.3%
2.8%
0.7%
LDCs
LMICs
UMICs
Sources: Calculations based on UNCTAD, UNCTADstat; WB, World Development Indicators; OECD, DAC-CRS Aid Activities Database.
How to evaluate the effectiveness of AFT?
• Aggregate cross-country evaluations
• Using econometric analysis (which we will discuss in this course)
• Sectoral and programme evaluations
• Review of a number of projects over time (by donors)
• Project level evaluations
• Can come in many different forms
• Impact evaluations (impact of intervention on treatment group in comparison to
control group)
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How does Aid for Trade impact trade?
Source: Cadot et al. (2014)
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Studies on the impact of aid for trade on trade costs
• Typical empirical model estimated by studies:
Costit    AFTit 1  X it 1   t  i   it
• i – country, t – year
• Costit – Trade cost variable, e.g. cost to import (export), time to import (export)
• AFTit-1 – Lagged aid for trade flows, e.g. total AFT, aid for trade facilitation, aid
for trade policy & regulation
• Cali and te Velde (2011)
• Impact of AFT Facilitation and AFT Policy and Regulation on cost and time
to import as well as on cost to export
• Busse, Hoekstra and Königer (2012)
• Impact of AFT, AFT Facilitation and AFT Policies and Regulations on cost and time to
import and export
• Cirera and Winters (2015)
• (No) impact of AFT on bilateral trade costs (ESCAP-WB database)
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Cali and te Velde (2011)
• Assess the impact of AFT Facilitation (ATF)and AFT Policy & Regulation (ATPR) on
cost and time to import as well as on cost to export
•
•
AFT disbursements from OECD CRS database
Short time span due availability of trade cost data: 2005-2009
• Other controls: GDP p.c., population, government effectiveness, country and
year fixed effects
• Explanatory variables, including AFT, are lagged one year
• Particular way to include observations with zero AFT flows
•
b1ln(max{1, ATF} + b2Dummy(ATF=0)
• Finding: 100% increase in AFT Facilitation is associated with a 5% decrease in
cost to import
• Endogeneity of AFT variables is a concern
• Downward bias as countries with higher trade costs are more likely to receive AFT?
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Cali and te Velde (2011)
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Busse, Hoekstra and Königer (2012)
• Impact of different Aid for Trade
categories (2005-8) on trade costs
(2006-9)
• Estimated in levels (not ln)
• AFT variables are accumulated
(“AFT stock”)
• Higher impact of AFT Facilitation
as compared to total AFT
• Controls include “other” AFT
• For subsamples: significant
impact of AFT on trade costs
driven by top 20 AFT recipients –
no significant impact in LDCs
• Not enough AFT to LDCs?
Threshold for AFT effectiveness?
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Studies on the impact of aid for trade on trade flows
• Two approaches using standard trade data
• Gravity estimation
X ijt    1 AFTit 1   2 AFT jt 1  3Yit 1   4Y jt 1  TCij  i  j   t   it
E.g.: Helble et al. (2012), OECD (2013), Vijl (2014)
• Export (import) demand estimation:
X it    1 AFTit 1  Z it 1  i   t   it
E.g.: Cali and te Velde (2010), Ferro et al. (2014)
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What about endogeneity?
• Endogeneity arises if any explanatory variable is correlated with the error term
• Endogeneity arises due to three possible problems:
• Reverse causality: Do countries with high trade costs get more AFT? Do sectors with
higher export potential or exports get more get more AFT?
• Omitted variables: Should additional variables, e.g. other official flows (OOFs) or
South-South development cooperation, be included in the model?
• Measurement error: Is AFT measured with error?
• How has it been addressed in studies?
• Lagged explanatory variables
• Fixed effects (e.g. country or bilateral dummies)
• Instruments for AFT: Civil liberties, affinity of countries – political proximity
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OECD/WTO AFT at a Glance (2013)
• Country coverage: 109 non-oil exporting developing countries exporting to all
countries
• Long time span: 1995-2011
• AFT commitments, three-year lags
• Other controls: ODA (minus AFT), GDP, population, bilateral trade costs
variables (distance, common border, language,…); year, importer and exporter
fixed effects
• Impact of AFT on exports is higher in low income countries and International
Development Association (IDA)-eligible countries (53 countries, mostly LDCs
and other low income countries)
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AFT at a Glance 2013: Effect of AFT on bilateral exports, by income group
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Source: OECD/WTO (2013), Table E.2, p. 393.
Helble et al. (2012): Effect of AFT on bilateral imports
• Assess impact of AFT on bilateral trade, distinguishing also between narrow
and broad AFT as well as hard and soft AFT
• Baseline estimates: 167 importers and 172 exporters
• Long time span: 1990-2005
• AFT commitments, not lagged (+lagged for robustness)
• AFT to importer (IAFT) and to exporter (EAFT)
• Other controls: other bilateral ODA (IOA; EOA) tariffs, GDP, GDP p.c., time fixed
effects (5-year averages), time-varying bilateral fixed effects (5-year averages)
• Simulations suggest that a US$1 increase in AFT can be associated with a
US$1.33 increase in exports of recipient countries.
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Helble et al. (2012): Effect of AFT on bilateral imports
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Source: Helble et al. (2012)
Helble et al. (2012): Narrow (trade policy) vs. broad (econ. Infrastructure and
productive capacity)
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Source: Helble et al. (2012)
Vijl (2014): Complementarities between AFT and economic integration
Source: Vijl (2014)
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Cali and te Velde (2011): AFT and merchandise exports
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Ferro et al. (2014): Aid to services and manufacturing exports
Source: Ferro et al. (2014)
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