Aid vs Trade Related Constraints – Geneva

Aid for Trade (AfT) initiative is among the key elements in the WTO Doha Development Agenda; and it is meant to help developing countries, especially LDCs, to build the supply-side capacity and trade related infrastructure that they need to assist them to expand their trade. Ordinary least square and error correction econometric models are employed on Tanzania’s available aid data from 1973 to 2004 to reveal that most aid has been going to non-productive (non-tradable) sectors as opposed to productive (tradable) sectors that have a direct impact on addressing the (export) supply side problems. This priority setting in aid allocation has rendered the tradable (export) sector low growth and hence little or no competitiveness in external markets. In Africa as a whole, capital flight and negative effects from global financial and trading systems exacerbate the problem. The issue turns out to be inadequacy of resources to invest in building productive and
trade capacities.

The failures of previous aid packages in building long-term productive and trade capacities in developing countries pose a challenge in policy and institutional frameworks as to the potential effectiveness of similar (future) facilities like AfT. Given the situation, the author’s proposed S-S-S-Model would give an alternative among other possibilities. Longer term, perhaps the best measure of aid effectiveness should be the extent to which a country over time reduces its reliance on external donor dependence.

©2006 by Charles Domician. All rights reserved. Sections of this document can be quoted without explicit permission from source, only that reference to author should be made. Any views expressed in this document are entirely the author’s, and should in no way be associated to any other institution whatsoever.

Contacts: docharlz18@gmail.com; +255-756-756-830 This work was originally presented to UNCTAD Virtual Institute Geneva, Switzerland, on Monday 22 May 2006 as part of the requirements of the Professional Master in International Trade Degree Programme (pMIT) of the University of Dar es Salaam.