The Impact of Economic Integration on Aid for Trade Effectiveness: Case Study of Colombia

Abstract

Aid for Trade (AfT) is nothing new for the development community. However, as its importance gained renewed interest in the Sixth WTO Ministerial conference held in Hong Kong in 2005, it attracted attention from the trade community. This trade-related aid growth-oriented and is used for enhancing the supply-side capacity of developing countries in order to assist them benefit from the multilateral trading system. However, the deadlock of Doha Round induced the proliferation of free trade agreement (FTAs). Thus, prior to investigate on the impact of economic integration on aid for trade effectiveness, this paper provides a primary research on determinants of giving AfT from donors perspective and whether recipients having FTAs with donors receive more AfT. After AfT Initiative was launched in 2005, most scholars investigate on the relationship between AfT and export performance. However, only one scholar (Vijil, 2013) studied about the complementarity of economic integration on AfT effectiveness. Thus, this paper attempts to extend the previous research by including new variables and by updating economic integration index after 2005. Also, this paper narrows down the research into the case study of Colombia. Regardless of the amount of AfT received by different income groups, it is assumed that the degree of AfT effectiveness will vary depending on a different level of economic integration in each developing country. Moreover, the overall regression results show that AfT is statistically highly significant in increasing export regardless of the income level. Specifically, among three sub-sectors of AfT, aid given to trade-related institution has a relatively stronger effect when it takes an interaction term with an economic integration variable. In conclusion, recipients with a higher level of economic integration and receiving more AfT tend to export more than recipients with a lower level of economic integration.