This paper has sought to inform the discussion on how to improve the effectiveness of Aid for Trade, and in particular the 2013 Global Aid for Trade Review. It has discussed what has worked and in what conditions as well as what needs to be done to further improve the effectiveness of Aid for Trade. The paper has reviewed the econometric evidence on the impact of Aid for Trade, and has highlighted that Aid for Trade tends to be positive and economically relevant for a number of measures of economic performance such as trade, growth and the investment climate. However, it also notes that the impact of Aid for Trade depends on the type of intervention, the income level and geographical region of the recipient country and the sector to which Aid for Trade flows are directed.
Further lessons of this paper include the following:
• There is a clear under-provision of some trade-related assistance. More effective alignment of needs – as expressed in DTISs – with the existing supply of Aid for Trade, as well as a gradual recognition by donors that certain areas (especially in the area of trade in services) have been underprovided, may facilitate a more effective means of ensuring trade-related needs are met.
• The frequent policy incoherence in donor countries needs to be addressed more clearly. This pertains not only to the frequent lack of ‘Aid for Trade awareness’ in country offices, but also, especially, to considering the trade agenda of the donor countries themselves.
• It may be worth considering a stronger role for independent agencies and/or multilateral donors in providing advice on sensitive issues. For example, bilateral donors should use multilateral channels to supporting trade policy when negotiating a trade agreement with a country. Bilateral donors could more actively consider programmes that promote imports from developing countries to the donor country itself.
• There is a need to more vigorously support improvements in trade policy capacity. But it is concerning that donor concerns about capacity constraints and inadequate government systems have led to increased parallel implementation units and reluctance to move towards budget support.
• Given the cross-border nature of trade policy, there is a strong economic rationale for strengthening regional institutions that address coordination failures as well as investing more in transnational corridor approaches. However, this frequently requires extensive cooperation across borders, and the role of RECs in this process needs to be considered carefully. Many lack the institutional capacity, legitimacy from member states and the ability to absorb large-scale funds. Hence, Aid for Trade support at the regional level will need to assess on a region-by- region basis how best to strengthen regional trade, in a manner that does not presuppose the same model throughout.
• While an overriding objective of Aid for Trade is to contribute to economic development, at this stage many projects do not clearly map out the channels through which this change is to happen. Therefore, providing clearer, measurable intermediate outcomes to interventions, the achievement of which can be evaluated (e.g. port clearance time and costs, incidence of illegal activity for trade facilitation interventions), and final outcomes to which these plausibly have contributed (trade volumes, customs revenue) would go some way towards addressing concerns about attribution. This would require a substantial investment in ensuring robust baseline data as well as a greater focus on integrating (and funding) M&E throughout the project cycle.
• Currently, there is a feeling among many recipients that M&E is being driven by accountability frameworks in OECD countries, which makes joint monitoring ineffective. While moving towards joint M&E is important, there is a need to ensure that M&E requirements do not overburden already overstretched national administrations and RECs, which should benefit from appropriate assistance so as to be able to face the requirements and costs of M&E processes.
• Given many donors’ uncertainty about how to better quantify the results of interventions, it might be helpful to work on further developing indicators and datasets at the micro level that
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provide useful outcome-level data for projects. Moving towards a culture of greater independence in evaluation, in which evaluators are not necessarily incentivised to provide favourable assessments, will contribute to more robust evaluations (see Box 3). Moreover, results and experiences should feed into the learning, design and planning processes.
• The current WTO/OECD Global Review process has been important in creating a shared and accessible base of knowledge on Aid for Trade flows and, to a lesser extent, impact, as well as convening actors from around the world to discuss these issues. However, the self-assessment surveys do not sufficiently improve our understanding. The questions are highly subjective and very few questions allow for easy cross-country comparisons. What the surveys do provide is an opportunity to understand how recipients view their engagement. This should feed into donor country plans and approaches to Aid for Trade. Furthermore, it is essential to develop a questionnaire that does not change every two years, in order to be able to assess consistently whether the effectiveness of Aid for Trade is improving.
• Finally, some critical gaps in knowledge on Aid for Trade remain, meaning further research is necessary to better inform policies. Some of the following areas could help close the knowledge gap and improve the Aid for Trade initiative.
o How Aid for Trade can best be used to work with the private sector through promoting global value chains relevant to development;
o How Aid for Trade can improve agricultural production and trade (and hence food security) through the provision of the right type of infrastructure;
o Whether aid to trade facilitation (and, where appropriate, different types of Aid for Trade) can lead to results for trade, growth and the investment climate, based on new econometric research that also aims to account for host country conditions.
There is also a need to learn from the experience of the emerging economies, such as China, India, Brazil and South Africa, as well as newly emerging MICs like Vietnam. In particular, we should look at what strategies and policies these countries have used and how they have supported these in 1) providing trade infrastructure; 2) integrating themselves into the global value chain and promoting the private sector in exports and imports; and 3) improving trade facilitation.