Infrastructure, Trade Costs, and Aid for Trade: The Imperatives for African Economies

Abstract

Abstract Using comprehensive bilateral trade costs data and a new index of infrastructure spanning from the 2002–11 period, we (1) examine the impact of aid-for-trade (AFT) from bilateral (BLT) and multilateral (MLT) sources on trade costs facing AFT recipient countries and (2) identify the role that improvements in infrastructure may play on the effectiveness of AFT inflows. Our results from a multilevel mixed-effects model indicate that increased AFT inflows from both sources reduce bilateral trade costs of the AFT recipient countries. Our results also indicate that infrastructure endowment promotes the bilateral (BLT) trade costs reduction effects of AFT inflows even much larger, hinting important policy implications relevant for strengthening the effectiveness of aid-for-trade and further aid extensions in general, especially targeted toward infrastructure improvements.

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