Globally, AfT mapped to these six services categories increased from $5.3 billion in 2002 (59% of total AfT) to $23.3 billion in 2015 (72.%). Thus, most AfT over the period was allocated to services sectors, with transport and energy sectors accounting for 45.9% and 30.2%, respectively, of total AfT in services disbursed over 2012-2015 on average (Figure 1). (In national accounts statistics, energy is a good not a service, but we include energy because most of the literature does so).
Figure 1. Sectoral distribution of global AfT in services ($ million)
Source: OECD, Query Wizard for International Development Statistics (QWIDS); own calculations.
AfT does little for trade in servicesOverall, the empirical analysis indicates that most AfT is not associated with greater trade in services. There is some evidence that AfT allocated to economic infrastructure is associated with greater trade in services, with aid targeting transport increasing imports of services of recipient nations, while aid for energy is associated with more services exports. More disaggregated analysis reveals substantial heterogeneity in the relationships between AfT and trade in services at the sector level, though the evidence is statistically weak.
The results also provide some evidence for the expected complementarities between AfT going to services sectors and merchandise trade. This is consistent with the role that services play as inputs into production. However, the extent to which such complementarities appear in the results is rather limited. There is less evidence for complementary relationships than would be expected a priori based on the literature analysing the relationships between manufacturing sector competitiveness and the performance of domestic services sectors (e.g. Beverelli et al. 2017, Hoekman and Shepherd 2017).
Aid for productive capacity that targets non-services sectors is found to have a statistically significant positive association with merchandise trade. The bilateral AfT data also suggest a significant relationship between AfT involving efforts to bolster productive capacity and trade, specifically imports from the aid recipients. However, such a relationship is not observed between trade in services and productive capacity building assistance that targets services sectors.
Policy implicationsGiven the major role services play in economic growth and sustainable development and the potential that exists to leverage new digital technologies to expand services trade, it is important that AfT efforts are informed by analysis to identify what types of assistance can support trade in services. The findings of the cross-country empirical study summarised in this column are unavoidably general in nature as a result of the limited availability of disaggregated services trade statistics for many developing countries. But the fact that we find hints that there are statistically significant associations between some types of AfT for services and trade in specific categories of services suggests there is value in devoting greater attention to the design of AfT to make this a more effective mechanism to support services trade. Such efforts require country-level analysis so as to be able to consider both cross-border trade and foreign direct investment in services as well as the complementarities between different types of AfT and trade in goods and services.
One question for more in-depth country analysis is to assess the robustness of our finding that AfT for productive capacity building appears to ‘work better’ for trade in goods than for trade in services. The revealed preference to date has been for AfT primarily to be allocated for services infrastructure and for productive capacity building projects to target merchandise exports. Our findings suggest that from the perspective of supporting trade in services, more in-depth analysis is needed to understand what can be learnt and emulated from productive capacity building AfT that targets merchandise trade.
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