ORIGINAL ARTICLE

Does aid for trade promote import diversification?

Posted On: Jul 30, 2021   |   Posted By: The World Economy

Abstract
Many studies have found that Aid for Trade is effective in promoting the exports and imports of recipient countries. Recently, Gnangnon and Kim found that AfT also contributes to the export diversification of recipient countries. We extend previous studies by assessing the effects of AfT on import diversification of recipient countries by estimating a two-step System GMM on a data set of 104 countries in 2003-2016. Our empirical results reveal that AfT contributes to the diversification of both import commodities and import partners. This effect is particularly strong when partner countries are Non-DAC countries. Our empirical evidence further strengthens the case for AfT because previous literature indicates that both export and import diversification are beneficial.

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