Aid for Trade and Regional Integration as Means for Accelerating Development of LLDCs

2nd UN CONFERENCE ON LLDCs

Vienna, Austria – 4 November 2014 (8.15 - 9.45)

Jaime de Melo

FERDI

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2 2

AID FOR TRADE What have we learnt? Which way ahead?

(e-book at http://www.ferdi.fr/en/publication/ouv-aid-trade-what-have-we-learnt-which-way-ahead )

What do we know about LLDC needs? Any Lessons?

I - Aid for Trade: Looking Ahead Olivier Cadot and Jaime de Melo

II - Evaluation in Aid for Trade: From Case Study Counting to Measuring

Olivier Cadot and Jaime de Melo

III - Aid for Trade: What can we Learn from the Case Studies? Richard Newfarmer

IV - Diagnostic Trade Integration Studies and their Updates under the

Enhanced Integrated Framework – A Retrospective Paul Brenton and Ian Gillson

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What Have we Learnt about Trade Costs? Reduction in trade costs account for about 1/3 of growth in trade

Evolution of simulated trade costs from a gravity equation (sample of 118 countries) Trade Costs have fallen less rapidly for low income countries….

Low income

High Income

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What Have we Learnt about Trade Costs? Trade Costs have only fallen by about 2% for a sample of 14 LLDCs

80

85

90

95

10

010

511

0

Tra

de

co

sts

1996 1998 2000 2002 2004 2006 2008 2010Year

non-LLDCs LICs(18) LLDCs LICs(14)

Source: Authors construction based on Arvis et al. (2013)

Trade costs in LLDCs and non-LLDCs LICs : 1996- 2010

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THE VICIOUS CIRCLE OF LLDCS INFRASTRUCTURE NETWORKS

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0.2

.4.6

.8

Perc

ent

1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011Year (Three year moving average)

non-oil LLDCs (27) Oil LLDCs (4)

Source: World Bank data : Oil LLDCs : Azerbaijan, Chad, Kazakhstan, and Turkmenistan

LLDC share of exports of Goods and Services : 1985- 2011

…so non-oil LLDCs trade shares have stagnated

0

10

20

30

40

50

60

Co

snta

nt

US

Do

llars

pe

r ca

pit

a

Aid for Trade per capita - country average (Commitments in constant US Dollars per Capita)

Landlocked Developing Countries

Least Developed Countries

Low Income Countries

AFT per capita trends have remained fairly constant through time

0

5

10

15

20

25

Landlocked DevelopingCountries

Least Developed Countries Low Income Countries

US

do

llars

pe

r ca

pit

a

Aid for Trade per capita (commitments, average over 1995-2012)

…Per capita AFT shares of LLDCs remained low

0

20

40

60

80

100

120

140

160

Bh

uta

n

Mo

ngo

lia

Arm

enia

Lao

PD

R

Kyr

gyzs

tan

Afg

han

ista

n

Bo

livia

Kyr

gyz

Rep

ub

lic

Mal

i

Zam

bia

Lao

Peo

ple

's D

emo

crat

ic

Mo

ldo

va

Bu

rkin

a Fa

so

Leso

tho

Ce

ntr

al A

fric

an R

ep

ub

lic

Aze

rbai

jan

Tajik

ista

n

Uga

nd

a

Rw

and

a

Nep

al

Mal

awi

Swaz

ilan

d

Bo

tsw

ana

Par

agu

ay

Eth

iop

ia

Ch

ad

Bu

run

di

Nig

er

Kaz

akh

stan

Uzb

eki

stan

Zim

bab

we

Turk

men

ista

n

Per Capita Aid: Total Aid and Aid for Trade (Average Commitments over 1995-2012)

Countries ranked in descending order of per capita AFT

Other Types of Aid

Aid for Trade

For most countries, the share of AFT is less than the share of other types of aid

0

1000

2000

3000

4000

5000

6000

7000

8000

9000

Mill

ion

s o

f U

S D

olla

rs

Aid for Trade in Landlocked Countries (Commitments in constant millions of US Dollars)

Trade Related Adjustments

Trade Policy Related

Building Productive Capacities

Economic Infrastructures

Most AFT is allocated to infrastructure

0%

10%

20%

30%

40%

50%

60%

19

95

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

Share of Aid for Trade in Total Aid (Commitments, 1995-2012)

Landlocked DevelopingCountries

Other Developing Countries

…so have components of AFT

AFT shares to LL countries have remained fairly constant

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20.0%

25.0%

30.0%

35.0%

40.0%

45.0%

50.0%

55.0%

60.0%

1995 1997 1999 2001 2003 2005 2007 2009

DAC countries

Multilateral

0

5

10

15

20

25

30

35

40

45

50

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Co

nsta

nt

pric

e b

illi

on

s U

SD

DAC countries Multilateral Other

Following the Paris declaration of 2005, the decline of the share of AFT in ODA has been arrested.

AFT: What Have we Learnt? Some apparent success in mobilizing funding…

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What Have we Learnt?

… and some success in mainstreaming trade in national development strategies (…sometimes)

Applying OECD word-count approach to Uganda’s budget speeches

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0.0%

20.0%

40.0%

60.0%

80.0%

100.0%

120.0%

Low High Low High Low High Low High Low High

Q1 Q2 Q3 Q4 Q5

Quintiles of the export/capita distribution

Weakest exporters

Strongest exporters

o Split countries by the median in terms of 2000-2005 AFT receipts (per dollar of export) o Check if high-receivers’ exports grew more over subsequent 5-year period (2005-10)

What Have we Learnt? … but no faster export growth for large recipients of AFT flows

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What have we Learnt? Macro and Micro face different trade-offs so we need both

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Internal validity (ability to identify a causal relation)

External validity (ability to derive generalizable results)

Impact Evaluation

Cross-country econometrics

Relevance of outcomes

Identification of causal chain

TRADE-OFF 1

TRADE-OFF 2

Micro studies face trade-off 1: they identify causal chains fairly extensively at the cost of less relevant (i.e. less easily transposable) outcomes

Cross-country studies have greater external validity but have less internal validity (omission of important factors)

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Which way ahead? Randomista or not, evaluate

RCT is not the alpha and omega of impact evaluation o What matters is baseline data collection + control group o Wealth of quasi-experimental methods available, even ex post

«RCT controversy» should not be an excuse to not evaluate o Every intervention left un-evaluated is a missed learning opportunity o Evaluation raises incentive issues; incentive-compatible setups can be designed (e.g.

making IE the «default» in all cases; decoupling IE results from project manager’s performance evaluation, …)

Toward an «evaluation-friendly» AFT o Cut costs; e.g. use existing stats as much as possible; put pressure on governments to

share statistics, in particular firm-level data o Encourage a culture of project design for evaluation (all projects designed like Progresa?)

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Which way ahead? Streamline the initiative

Exploit the opportunity offered by the Trade Facilitation Agreement o Help make trade portals useful repositories of NTMs o Provide technical assistance to Trade Facilitation Committees (Art. 13) to develop trade-

related regulatory-oversight capabilities (not just counting documents to export)

Better use Diagnostic Trade Integration Studies o DTIS updates already a crude form of progress monitoring; clear learning curve from

first generation o Still lack of ownership (government side) and visibility (donor side) o Need for leaner, more focused action matrices (already largely the case) o Mainstream regional integration in trade policy; region-level DTISs

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Which way ahead? In sum…

AFT’s broad achievements… o Mainstreaming of trade in national development strategies o Creating a crude form of donor coordination around «competitiveness

strategies» o Mobilizing funding

… are at risk unless a «culture of evaluation» builds up o Donor budget pressures require credible identification of outcome

improvements + causation; the instruments are there to use o Successful globalizers have all experimented with policy, but no learning from

experimentation without evaluation

… and the initiative gets a second wind from the TFA o A tool for the TFA’s application, focused on NTMs o A vehicle to foster deep regional integration