Aid for Trade (AfT) has moved up both the aid and trade agendas. There is now a need for quantitative evidence which can be used to identify needs and inform an analysis of how AfT can best be provided.

Aid for Trade has moved up both the aid and trade agendas. Several studies have described the rationale for AfT, but it is now time to move beyond the descriptive stage and analyse the needs and design its implementation.

We first discuss why certain types of aid should produce particular effects on trade, so that we can propose hypotheses and assess the relevance of empirical patterns in the context of Aid for Trade. Table 2.1 identifies potential market and governance failures affecting the development of trade and suggests policy responses to address these failures. It identi fies whether a proposed response could be assisted by an AfT package and what part of the package would be relevant to the task (on the basis of its current classification in the OECD Credit Reporting System (CRS) aid statistics).

We use two broad ways of assessing the impact of AfT: its effect on the costs of trading and on exports.

Table 4.1 presents the estimation results of the equation for costs of trading (exporting first) in 2008. We focus on this variable because it has an obvious relation to trade, but it is straightforward from a statistical point of view to examine some other indicators as well. The costs of trading variables are not particularly suitable for constructing time series due to data availability, so we focus on one year. We estimate equation (1) for a cross-section of around 120 developing countries.

This paper has a number of key findings. We have argued that Aid for Trade should affect trade directly or indirectly by improving the investment climate in which trade takes place. We found that AfT can have a positive effect on investment climate indica - tors. We found that AfT that falls into the category of trade policy and regulations has helped to reduce the costs of trading, controlling for a number of other factors such as governance generally, being landlocked and income status. This is a key policy finding because it shows that AfT is effective where it aims to be effective (subject, of course, to the quality of reporting by donors to the OECD CRS database).