Aid For Trade And Welfare Dynamics In The Developing Countries

Linkage between Aid for Trade and welfare of the world poor has become crucial with the rise of the extreme poverty for the first time in over 20 years because of the prolong presence of Covid-19 pandemic.The international donors and development partner introduces Aid for Trade(AFT)initiatives in 2005,for low income developing economics to overcome their supply-side constraints such as meager infrastructure,inappropriate international trade policy which restrict these countries to create,participate and gain the benefits from emerging trade and investment benefits as well.This study empirically investigates the effect of Aid for Trade on both the monetary and non-monetary measures of welfare;particularly on Human Development Index,economic growth and incidence of inequality in three distinct investigations.This study adopts several panel data empirical techniques for these investigations-such as panel data fixed effects,random effects,Difference GMM and System GMM estimation techniques.This study includes 110 aid recipient developing countries for the analysis for a period from 2002 to 2019 because of AFT data availability from 2002,although AFT concept first introduced in 2005.The study finding of first investigation confirms that aggregated AFT and AFT channeled to infrastructure development,productive capacity building program and trade policy and regulation related activities significantly improve the human development index and thus contribute to achieve the sustainable development agenda.Therefore,sustainable allocation to these sectors improves overall welfare by generating employment prospects and facilitating trade opportunities for the working population as well as by reducing the existing gender gap.The second investigation confirms that annual growth of aggregated AFT does not show positive impact on growth.AFT to productive capacity building,economic infrastructure and trade policy and regulation shows positive impact on economic growth.However,our study did not find any significant impact on economic growth from sector specific disbursement of AFT.AFT to building productive capacity shows higher positive impact on achieving economic growth in the short run.Nevertheless,our study result did not find any long run impact of AFT at any categories on economic growth.Findings of our third investigation reveals that aggregated AFT and AFT disbursed to economic infrastructure sector and trade policy and regulations sector has a significant positive effect on narrowing income inequality(SDG10)in the sample countries.Study also finds that,AFT to Trade policy and regulation is more effective than those of other categories in reducing income inequality.Similarly,the impact of financial inclusion on reducing income inequality is positive but we did not find any statistical significance.With these findings,our policy recommendation is to allocate more AFT to human welfare contributing sectors such as micro,small and medium manufacturing and service sectors,focusing to growth generating projects and it should be country specific and project specific following maximum people oriented strategy and policy.