Institutional quality and the effectiveness of aid for trade

Bedassa Tadesse, Elias Shukralla, Bichaka Fayissa

Research output: Contribution to journalArticlepeer-review

Abstract

Trade policy barriers and high transaction costs hinder developing countries from taking the full advantages of the global trading system. In order to help developing countries overcome the problem, the World Trade Organization (WTO) launched the Aid for Trade (AFT) initiatives in its Ministerial Conference held in Hong Kong in 2005. We examine the effects of AFT inflows on bilateral trade costs facing 133 developing countries while accounting for differences in their location on the contours of various measures of institutional quality. Our results from the estimation of a mixed effects (random-intercept and random-coefficient) model indicate that institutional quality significantly affects the extent to which AFT reduces bilateral trade costs. An important policy implication of our findings is that an economically robust and sustainable reduction in bilateral trade costs facing developing countries requires the presence of both promulgated and effectively functioning institutions such as regulatory power and the rule of law.

Original languageEnglish (US)
Pages (from-to)4233-4254
Number of pages22
JournalApplied Economics
Volume51
Issue number39
DOIs
StatePublished - Aug 21 2019

Bibliographical note

Publisher Copyright:
© 2019, © 2019 Informa UK Limited, trading as Taylor & Francis Group.

Keywords

  • Institutions
  • aid for trade
  • effectiveness
  • mixed-effects model
  • policy

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