Export Diversification Effects of Aid for Trade Facilitation

Abstract

Improving developing countries' export performance is a current policy priority, and the initiative Aid for Trade (AfT) has become an increasingly popular concept as a response to this. The purpose of this thesis is to contribute to the relatively scarce evidence of its impact on export diversifcation. The few studies that evaluate the effect of AfT on export diversifcation do so using aggregate categorizations of AfT, thus unable to account for heterogeneous effects of distinct aid ows. Relating to previous research on the effects of reduced trade costs on export diversifcation, this thesis instead applies a more disaggregated approach. We evaluate the impact of AfT facilitation, a category of AfT aimed at lowering trade costs and simplifying trade procedures, and hypothesize it increases the number of exported product categories. Using panel data in a GMM model, our results provide support for the hypothesis. We find that the impact is stronger when leaving out the bottom quarter in terms of cumulative AfT facilitation per capita over the study period, suggesting a threshold effect for AfT facilitation to become effective.