Trade-related Government Expenditure and Aid for Trade in Recipient-Countries

This article examines how the Aid for Trade (AfT) supplied by donors to recipient-countries (to help them promote trade) is influenced by recipient-countries' level of trade-related government expenditure. The empirical analysis uses an unbalanced panel dataset comprising 65 countries over the period 2005-2016, and the two-step system Generalised Methods of Moments estimator. Results suggest that donor-countries tend to allocate higher AfT flows to recipients that increase public expenditure in favour of the trade sector, with a view to promoting this sector. This outcome applies to the sub-samples of Least Developed Countries (LDCs) and countries that are not classified as LDCs.