Aid-for-Trade and Export

Performance:

The Case of Aid in

Services

Esteban Ferro, Alberto Portugal

& John S. Wilson

7 December 2010

The World Bank

1

2

Outline

1. Motivation

2. Literature review

3. Identification strategy.

4. Data and Results

5. Final Remarks

2

1. Motivation

Aid for Trade (AfT) is a “high level” initiative initiated by the

WTO/OECD:

“Aid for Trade aims to help developing countries,

particularly least-developed countries, develop the trade-

related skills and infrastructure that is needed to implement

and benefit from WTO agreements and to expand their

trade”.

Scant evidence on the impact of AFT on export

performance in developing countries.

3

Aid for trade popular among donors and

multilateral agencies…

1st Global Review of Aid-For-Trade (Geneva

2007)

Heads of multilateral agencies:From left to right: Luis Alberto Moreno, IADB - Edouard Dayan, UPU - Dominique Strauss-Kahn, IMF - Rajat Nag, ADB - Patricia Francis,

ITC - Abdoulie Janneh, UNECA - Pascal Lamy, WTO - Angel Gurría, OECD - Valentine Rugwabiza, WTO - Kemal Dervis, UNDP - Robert

Zoellick, World Bank - Juan Somavia, ILO - Donald Kaberuka, AfDB

4

AFT through Time

5

0

5,0

00

10,0

00

15,0

00

20,0

00

25,0

00

199019

9119

921993

19941995

1996

1997

19981999

2000

2001

2002

20032004

200520

0620

072008

Aid for Trade (1990-2008)

AFT_infrastructure AFT_capacity

AFT_regulation

Source: estimates from OECD-CRS database.

Correlation of AFT and Exports (1)

6

15

20

25

30

ln(e

xp

ort

s)

5 10 15 20 25ln_aid

Fitted values' R2

=0.171

AFT_Total vs. Exports (1990-2008)

51

01

52

02

53

0

ln(e

xp

ort

s)

5 10 15 20ln_aid

Fitted values' R2

=0.033

Industry Aid vs. Industry Exports (1990-2008)

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DZAAGO

ATG

ARG

BGD

BRB

BLZ

BEN

BTN

BOL

BWA

BRA

BFA

BDI

CMR

CPV

CAF

TCD

CHL

CHN

COL

COM

ZAR

COGCRI

CIV

DJI

DMA

DOM

ECU EGY

SLV

GNQ

FJI

GAB

GMB

GHA

GRD

GTM

GIN

GNB

GUY

HND

INDIDN

JAM

JOR KEN

KIR

LAOLBN

LSOLBR

LBY

MDG

MWI

MYS

MDV MLI

MUS

MEX

MAR

MOZNAM

NPL

NIC

NER

NGA

OMNPAK

PAN PNGPRY

PER

PHL

RWA

WSM

SEN

SYC SLESLB

ZAF

LKA

KNALCA

VCT

SDN

SURSWZ

TZA

THA

TGO

TON

TTO TUN

TUR

UGA

URY

VUT

VNM

ZMB

15

20

25

30

ln(e

xp

ort

s)

12 14 16 18 20 22ln_aid

Fitted values R2

=0.151

AFT_Total vs. Exports (2008)

DZA

AGO

ATG

ARG

BGDBRB

BLZ

BEN

BTN

BOL

BWA

BRA

BFABDI

CMR

CPV

CAF

TCDCHL

CHN

COL

COM

ZAR

COG

CRI

CIV

DJIDMA

DOM

ECU

EGYSLV

GNQ

FJI

GAB

GMB

GHA

GRD

GTM

GIN

GNB

GUY

HND

IND

IDN

JAM

JOR

KEN

KIR

LAO

LBN

LSO

LBR

LBY

MDG

MWI

MYS

MDV

MLI

MUSMEX

MARMOZ

NAM

NPL

NIC

NER

NGA

OMN

PAK

PAN

PNG

PRYPER

PHL

RWA

WSM SEN

SYC

SLE

SLB

ZAF

LKA

KNALCA

VCT

SDN

SUR

SWZ

TZA

THATGO

TON

TTO

TUN

TUR

UGA

URY

VUT

VNM

ZMB

34

56

78

ln(e

xp

ort

s /

GD

P)

0 1 2 3 4ln(aid / GDP)

Fitted values R2

=0.067

Total AFT/GDP vs. Exports/GDP (2008)

Correlation of AFT and Exports (2)

Potential reverse causality: does Aid cause exports?

or does exports cause Aid?

1990-2008 2008

code/ sector name Disburs. (USD mill) Disburs. (USD mill)

Infrastructure 114,118 57% 13,112 51%

210 Transport & Storage 61,633 31% 7,494 29%

220 Communications 7,508 4% 461 2%

230 Energy 44,977 22% 5,157 20%

Production Capacity 82,101 41% 11,982 46%

240 Banking & Financial Services 13,053 7% 2,892 11%

250 Business & Other Services 9,319 5% 1,943 8%

311 Agriculture 32,163 16% 4,668 18%

312 Forestry 4,567 2% 534 2%

313 Fishing 2,836 1% 341 1%

321 Industry 15,561 8% 1,362 5%Agro-industries 821.20 0.4% 86.16 0.4%Wood industries 240.26 0.1% 2.48 0.0%Textiles 100.39 0.1% 9.86 0.0%Chemicals 2,125.18 1.1% 45.27 0.2%Non metallic products 324.50 0.2% 0.84 0.0%Basic Metals 253.02 0.1% 1.87 0.0%Non-ferrous metals 28.45 0.0% 0.27 0.0%Machinery 352.35 0.2% 22.90 0.1%Transport equipment 622.52 0.3% 2.76 0.0%Energy manufacturing 670.49 0.4% 1.45 0.0%

Industrial policy, , R&D 8,681.74 4.7% 844.20 3.8%

322 Mineral Resources & Mining 4,602 2% 241 1%

Trade Policies and Regulations 4,378 2% 795 3%

Total 200,596 100% 25,888 100%

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2. Literature review

Aid-for-Trade on exports

Helble, Mann & Wilson (2010)

Brenton & von Uexkull (2009)

Cali & Te Velde (2009)

AfT on trade costs (DB: time/container cost,

#documents) :

Busse et al. (2010):

Cali and te-Velde (2009)

Aid Effectiveness: large literature, ex

Rajan & Subramanian (2009 & forthcoming)

Brueckner (2010)

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Problem: potential reverse causality

Biased estimates

Potential IV for AFT: civil liberties,

immunization rates, gender health access?

IV at country level.

Limited instruments.

Identification strategy:

exploit Aid on services.

use US I-O data on intensity of services on

downstream goods.

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3. Identification Strategy

Estimation

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ijt

k

kjt

kkjtitijijt AFTServiceensityServiceIntExp

i

lnln

i: industry (Agro-ind,

Wood-ind, Textiles,

Chemicals, Non metallic

prod., Basic Metals, Non-

ferrous metals, Machinery,

Transport Equip.)

j: exporter( aid recipient):

106 countries

t: year:1990-2008

Total requirement of

services k in dollar of

manufacture i

k: services (Transport &

Storage, ICT, Energy,

Banking & Financial

Services, Business

Services)

Aid in

Services k

Data

OECD-CRS database: disbursed flows of AFT from 33

donors (including multilateral donors) over 1990-2008.

Input-Output Total Requirement tables

production required, directly and indirectly, from each industry

& commodity to produce a dollar of final good.

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Results

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1 2 3 4 5 6 7

ln(trade) ln(trade) ln(trade) ln(trade) ln(trade) ln(trade) ln(trade)

trans_int X aid_trans 0.21 0.13 0.817***

[0.154] [0.155] [0.169]

ict_int X aid_ict -0.259 -0.231 -0.959*

[0.383] [0.381] [0.569]

energy_int X aid_energy 0.549** 0.483* 1.716***

[0.243] [0.247] [0.269]

bank_int X aid_bank 1.018* 0.912* 2.482***

[0.556] [0.560] [0.788]

bus_int x aid_bus 0.351 0.371* 1.349***

[0.222] [0.220] [0.334]

Country-Sector Effect Yes Yes Yes Yes Yes Yes No

Country-Year Effect Yes Yes Yes Yes Yes Yes Yes

Sector-Year Effect Yes Yes Yes Yes Yes Yes Yes

Observations 17678 17678 17678 17678 17678 17678 17678

R-squared 0.95 0.95 0.95 0.95 0.95 0.95 0.82

Robust standard errors in brackets. * significant at 10%; ** significant at 5%; *** significant at 1%. Dependent variable is ln( exports). Service sector intensities are estimated using US Total Input Requirements.

Table 1- Impact of aid to services on manufacturing exports

Results

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Robustness Checks By income level

Baseline ARG_Intensities Year>1999 low mid-low mid-high

1 2 3 4 5 6

trans_int X aid_trans 0.13 0.015 0.343 0.062 -0.15 0.551**

[0.155] [0.168] [0.267] [0.361] [0.290] [0.225]

ict_int X aid_ict -0.231 0.156 -1.617** 0.64 -0.417 -1.357**

[0.381] [1.493] [0.807] [0.749] [0.580] [0.690]

energy_int X aid_energy 0.483* 0.491*** 0.819** 0.575 0.800* 0.059

[0.247] [0.183] [0.393] [0.503] [0.478] [0.333]

bank_int X aid_bank 0.912* 3.453** 2.691*** 1.743 1.457* 0.088

[0.560] [1.452] [0.906] [1.095] [0.809] [1.085]

bus_int x aid_bus 0.371* -0.679*** -0.211 -0.371 0.541 0.856**

[0.222] [0.252] [0.342] [0.435] [0.437] [0.414]

Observations 17678 17678 9480 6298 6185 3998

R-squared 0.95 0.95 0.96 0.92 0.96 0.97

Robust standard errors in brackets. * significant at 10%; ** significant at 5%; *** significant at 1%. Dependent variable is ln( exports). Service sector intensities are estimated using US Total Input Requirements except for column (2) where Argentina’s Total Input Requirements are used. All regressions control for country-sector, country-year, and sector-year effects.

Table 2- Impact of aid to services on manufacturing exports

Final Remarks and Future Research

Extend the input-output linkages to estimate:

Impact of aid on additional upstream sectors

(other than services)

On exports of downstream goods (other than

manufactures)

Implement the identification strategy with

country-specific Input-Output matrices.

Additional robustness checks (lags of aid,

samples of countries, years)

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To be continued…

Many thanks!

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17

Aid to Service Sectors (Inputs)

210 - Transport and Storage

220 - Communications

230 - Energy

240 - Banking and Financial Services

250 - Business and Other Services

Export Performance in Manufacturing

- Agro-industries - Wood-industries

- Textiles - Chemicals

- Basic Metals - Non-Ferrous Metals

- Machinery - Transport Equipment

- Non-metallic mineral products

Identification Strategy