Aid for Trade and Economic Growth: Does the Quality of Institutions Matter?

Abstract

This paper investigates the impact of Aid for Trade inflows on economic growth in developing countries, and whether this impact is dependent on the institutional quality of these countries. The empirical analysis covers 75 recipient countries over the 2009- 2018 period. This study applies the Quantile Regression approach. The empirical findings of the third objective suggested the significant impact of the aggregate Aid for Trade inflows over the full sample, precisely, the low-income recipients. In terms of its categories, Aid for Trade for productive capacity building generates the largest positive impact on the economic growth of the receiver countries followed by Aid for Trade for trade policy and regulation, while Aid for Trade for economic infrastructure was observed to have the weakest positive effect. Furthermore, Aid for Trade interaction with institutional variables was found to be negative. However, these coefficients appear to converge toward positive in the case of countries with better institutional quality (high-income recipients).