Department of Economics and Business Economics

Is aid for trade effective? A panel quantile regression approach

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  • Inmaculada Martínez-Zarzoso, University of Göttingen, Jaume I University
  • ,
  • Felicitas Nowak-Lehmann D., University of Göttingen
  • ,
  • Kai Rehwald

This paper investigates whether Aid for Trade (AfT) leads to greater exports in recipient countries. Using panel quantile regression and two strategies to address endogeneity (AfT lagged by two periods and dynamic OLS), our results suggest that total AfT disbursements promote the export of goods and services mainly for the lower quantiles (0.1, 0.25, 0.50) of the conditional distribution of exports. Hence, countries that export less in volume are those benefitting most from AfT. This effect is mainly driven by the impact on exports of goods rather than on that of services. We also investigate which types of AfT are effective when endogeneity is controlled for. The main results show that whereas aid to improve trade policy and regulation is associated with higher exports for all quantiles, aid used to build infrastructure is found to affect exports at only the lowest tails of the distribution (0.10–0.35) and aid to build productive capacity is generally more effective for the lower quantiles of the export distribution (0.10–0.50). In contrast, aid disbursed for general budget support (an untargeted type of aid) is not associated with greater export levels. This finding holds irrespective of the quantile.

Original languageEnglish
JournalReview of Development Economics
Pages (from-to)e175-e203
Publication statusPublished - 1 Nov 2017

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