Does aid for trade diversify sub-Saharan Africa’s exports at the intensive and extensive margins?

Abstract

This article applies the flexible estimation approach to estimate an augmented gravity trade model to investigate the link between aid for trade (AfT) and export diversification along the intensive and extensive margins in 42 sub-Saharan African (SSA) countries for the period 1995 to 2019. The findings suggest that total AfT is conducive to export diversification along both margins. When analysed by the AfT category, the results reveal that AfT for trade facilitation is more effective in the short run in boosting exports at the extensive margin while AfT for productive capacity building has a bigger impact along both export margins in the longer term. AfT for economic infrastructure seems to promote exports only at the intensive margin. A key policy implication for the donor community is that providing new and additional resources to trade facilitation in African countries could deliver the highest immediate returns in terms of aid effectiveness.