Governance and the Effectiveness of Aid for Trade – Case Study of Rwanda and Burundi

Abstract

Abstract

In recent years, the good governance approach in the Official Development Assistance (ODA) policy has received increasing attention. A tremendous amount of aid has been delivered to the Least Developed Countries (LDCs). Yet, the impact has been slow and a significant share of funds has been evaporated behind the scenes. The world has recognized trade as a powerful engine for economic growth. Many LDCs are now adopting trade as an exit strategy to graduate from poverty, therefore, graduating from aid. Aid for Trade (AfT), a development assistance program that targets trade enhancement in recipient countries, is intended to support countries in building the capacity to integrate in the world economy and to take advantage of market opportunities. While most findings concentrate on empirical studies of the effectiveness of AfT in promoting trade expansion or on impact of governance on foreign aid, this thesis takes a different approach. It examines, from the viewpoints of developing countries, the trends and motivations toward the implementation of aid for trade policies, and investigates the conditions under which AfT policies are optimized. Concerned by the effectiveness of aid, developing countries are urged to establish good governance as a core element of their development strategies. This study examines AfT policy performance under the condition of improving governance. The thesis is supported with a country-based study of Rwanda and Burundi. In fact, both countries share similarities in terms of its geography and history. However, their development results differ. Rwanda takes the lead in establishing a sound governance system while Burundi still focuses on recovering from chaos. The findings reveal that the recipient government faces sequences of development phases in undertaking Aid for Trade policies. First, AfT is effective when the government shows strong motivation to reform and designs policies to address the countrys challenges to trade

second, when recipients take ownership of their own policies

and third, when donors and recipients work together for joint ownership.