Effect of Aid for Trade on Recipient-Countries' Participation in Global Value Chains

The present analysis has investigated, at the country-level, the effect of Aid for Trade (AfT) flows on recipient countries' participation in Global Value Chains (GVCs), measured through countries' participation in forward and backward GVCs as well as their position in GVCs. The analysis has covered 80 countries over the period from 2002 to 2018, and used the within fixed effects, the random effect Mundlak approach and the "Quantile via Moments" approach. It has established several findings. On average, AfT interventions promote backward GVC participation, but do not affect forward GVC participation. Total AfT flows (including AfT flows for economic infrastructure, AfT for productive capacities and AfT for trade policy and regulation) enhance backward GVC participation across all quantiles, and the magnitude of this positive is larger for countries in lower quantiles (including the lowest one) than for those in upper quantiles. These resource inflows do not affect forward GVC participation by countries situated in upper quantiles, but do increase forward GVC participation by countries located in lower quantiles. They do not affect the GVC position of countries in lower quantiles, but encourage more engagement in downstream activities than in upstream activities for countries located in the 75th and 90th quantiles. The effects of the three components of AfT flows on countries' forward GVC participation and GVC position are mixed, and vary across quantiles. Finally, the analysis has shown that the effect of AfT interventions on countries' participation in GVCs does depend on the overall trade costs faced by countries, including their tariff and nontariff costs.