Does the Impact of Aid for Trade on Export Product Diversification depend on Structural economic policies in Recipient-Countries

Abstract

This paper examines the extent to which Aid for Trade interventions interact with long-term structural economic policies in recipient countries, to affect these countries’ export product diversification path. These include trade policy, international financial policy and domestic financial development. We additionally consider institutional and governance quality which, by contributing to the promotion of a supportive business environment, could also alter countries’ path of export product diversification. The analysis focuses on 112 countries over the period 2002–2015 and uses the system Generalised Method of Moments approach. Results suggest that Aid for Trade is conducive to export product diversification in countries that implement greater trade policy liberalisation, or have greater financial openness, or better institutional and governance quality. However, Aid for Trade tends to enhance export product concentration in countries with higher levels of financial development.