Influence of Aid-for-Trade on exports: A disaggregated analysis for Pakistan

Abstract

The Aid-for-Trade (AfT) though has been widely acknowledged as a reliable source for promoting trade and, in particular, exports in aid recipient developing countries, its effectiveness in this regard has yet to be established. Using panel data of Pakistan's top 60 trade partner nations which is covering 90% of trade flows, and the random-effect panel Gravity model, this study examines whether the subcategories of AfT boost export flows of Pakistan to both AfT-Donor and Non-Donor during the period 2005 to 2017. Overall, Aid-for-Trade has a considerable negative impact on Pakistan's exports, according to the findings. Only help in the sectors of "industry, fishing, and tourism" has had a major and favorable impact on Pakistan's bilateral exports. "The areas of transportation and storage, communication, energy, trade policy and regulations, business and other services, banking and finance, agriculture, forestry, mineral and resource extraction, and tourism have a negative impact on Pakistan's bilateral exports." In comparison to non-donor countries, total trade flows in terms of exports are reduced as a result of aid. As a result, Aid Donor Countries benefit more from the Aid-for-Trade scheme than Pakistan (the Aid-Recipient Country).