Effectiveness of Aid for Trade in Small and Vulnerable Economies

An Empirical Assessment

image of Effectiveness of Aid for Trade in Small and Vulnerable Economies
This Economic Paper presents the first analyses of the use and effectiveness of Aid for Trade (AfT), the initiative to help developing countries boost their involvement in the global economy, for small and vulnerable economies (SVEs). It examines in detail the extent to which SVEs have been able to access AfT funds and to what extent this assistance has helped them to improve their trade performance.

Well designed traderelated assistance will help SVEs face the challenges posed by their characteristics, particularly when the prospects for small states have been deteriorating further due to preference erosion and the emergence of new and large competitors.



Conclusions and policy implications

This study is one of the first efforts to focus on the effects of AfT in SVEs. The evidence in this paper suggests that SVEs fall into a category of countries in special need of AfT due to their relative disadvantage in international trade and to their higher expected adjustment costs to trade integration relative to other developing countries. Although the rationale for AfT is particularly clear for SVEs, no donor has a specific AfT focus on these countries. There are a number of programmes that may be particularly relevant for SVEs as they address some of the trade-related shocks likely to be faced by these countries, such as the EU SFA for bananas, the Special Fund for Rum and the trade integration mechanism. However, there is no programme we are aware of that addresses specific trade constraints faced by SVEs, such as the consequences of remoteness and smallness. This may be a useful addition that should be considered if SVEs are to compete effectively in an integrated trade regime.


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