Chapter 11: Aid for trade: the case of Asia and Oceania nations
Foreign aid to developing countries over the past five decades has undergone many changes in addressing economic and social development of the recipient countries. The focus of aid to support these various development programmes for poverty reduction and meet specific targets of the millennium development goals has been extended to include aid for trade (AfT) activities. Giving aid to assist developing countries’ needs is also seen to promote commercial interests of the donors (Gounder, 1994; Berthélemy, 2006; Bandyopadhyay and Vermann, 2012). Foreign aid flows and trade nexus of many developing countries also indicate that aid is tied to recipients’ trade levels. The Organisation for Economic Co-operation and Development (OECD) policy on reducing tied aid was critical to recipients’ trade linkages. The goal of revitalizing and balancing aid and trade came into existence in 2005 owing to the failing Doha Round. This has contributed to AfT initiatives. Stiglitz and Charlton (2006, 2013) note the right to trade and the right to development by rethinking the AfT agenda as trade has been a significant part of nations’ economic activities. The role of AfT is to assist developing nations in trade strategy development and trade agreement negotiations, implement outcomes, improve infrastructure to effectively compete in the global markets, enhance the capacities to address standards, trade policy, regional integration, and competitiveness. This study, in evaluating the effectiveness of Australian and New Zealand AfT to the Asia-Pacific nations, examines the link between aid and trade expansion using the gravity model.
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