-From Arthaniti: Journal of Economic Theory and Practice
Introduction
To reconcile trade and development,
the members of the World Trade Organization (WTO) launched in 2005 at the WTO’s
Hong Kong Ministerial Conference (in Hong Kong) the Aid for Trade (AfT) Initiative
(WTO, 2005).
This Initiative purports to help
developing countries, particularly the least developed countries (LDCs), to
build the supply-side capacity and trade-related infrastructure that they need
to assist them to implement and benefit from WTO Agreements and more broadly to
expand their trade. Since the launch of the AfT Initiative by the members of
the WTO, a wealth of studies has been conducted on the effectiveness of this
Initiative.
While the bulk of these studies have
focussed on how AfT has affected recipient-countries’ export performance, to
the best of our knowledge, only one study (Gnangnon, 2018a) has looked at the effect
of AfT on recipient-countries’ trade policy.
The current article builds on the
work of Gnangnon (2018a) to examine the
impact of unpredictability of AfT on trade policy in recipient-countries. The
concept of ‘aid unpredictability’ in general, and ‘AfT unpredictability’ in
particular, represents another way of assessing the effectiveness of AfT in
recipient-countries.
In fact, in discussing the rhetoric
and reality concerning the predictability of development aid, Vargas Hill
(2004) has argued that the rule whereby life is subjected to all kinds of
fluctuations, with some of them being predictable whereas others occur in a way
that cannot be predicted, applies also to overseas development assistance
received by developing countries.
In the literature, the concepts of
aid predictability (e.g., Celasun, Walliser, Tavares, & Guiso,
2008; Gnangnon, 2014; Kodama, 2012; Odedokun, 2003; Vargas Hill, 2004) and
aid volatility (Bulíř & Hamann, 2003, 2008; Chauvet & Guillaumont, 2008; Hudson, 2015; Hudson & Mosley, 2008a, 2008b; Tressel & Prati, 2006) are different, although
they are sometimes used interchangeably. According to Celasun, Walliser,
Tavares and Guiso (2008, p. 549), lack of aid
predictability is not equivalent to aid volatility.
While aid volatility is an ex-post
description of the variability in aid disbursements over time, predictability
of aid refers, by contrast, to the difference between disbursements expected
ex-ante, and actual disbursements, during a given time period.
Thus, predictability of aid refers to the situation of confidence of aid-recipient-countries about the amount and timing of aid disbursements, while aid is volatile if it moves up and down significantly between two-time periods. Low predictability of aid could result in more volatile aid, which means that observed aid volatility on its own does not conclusively indicate the extent to which aid is less effective.
Aid could
be simultaneously volatile and predictable, as volatile aid disbursements can
in part mirror the lumpiness of spending of large investments projects
(financed notably through AfT flows) (Celasun & Walliser, 2007, p. 3). In light of the
foregoing, Celasun et al. (2008) have underscored
that in spite of requirements imposed by data for the measurement of aid
predictability, the latter remains the more relevant concept for examining aid
effectiveness issues.
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