economy as a whole, allocating assistance to enhance trade capacity can help avoid negative competitiveness spillovers generated by aid inflows such as Dutch disease and pressures for real appreciation. As Reis and Farole (2010) note, the post-crisis “competitiveness policy framework” should tackle the priorities of aligning macroeconomic incentives (e.g.: trade barriers, real exchange rates and labor market policies), reducing at-the-border and behind-theborder trade costs, and overcoming government and market failures (e.g., shortages in trade finance, stimulating technology diffusion, improving product standards). Aid for trade can help low-income countries address this agenda – without targeting specific industries or potentially distorting policies to support product-specific investments. It can do so by improving trade policy coordination; trade facilitation, skill formation, trade-related infrastructure; and administrative procedures (Cali and te Velde, 2008).

# **2. Trends in Aid for Trade**

What is aid for trade? The OECD compiles statistics on official development assistance (ODA) in support of trade. These data distinguish between the following broad categories of support: (1) technical assistance for trade policy and regulations, (2) productive capacity building (including trade development), (3) trade-related infrastructure, and (4) trade related adjustment. Examples of support to trade policy and regulatory reform include projects at the country level to harmonize regulations to international norms. Capacity building and trade development include projects to assist in diversification of exports. Trade-related infrastructure projects include roads, ports, and telecommunications network investments. Trade adjustment assistance involves aid to help with costs associated with trade liberalization, including tariff reduction and preference erosion, for example.

According to the data reported by the OECD, some 25 percent of ODA was directed toward aid for trade in 2008, and about 35 percent of aid that donors and governments allocated to particular sectors.<sup>8</sup> Bilateral donors provided low-income countries, including LDCs, with about US$15.6 billion in aid for trade in 2008. This amounted to some 40 percent of the total US$39 billion in concessional aid for trade commitments in 2008. The LDCs received about one-fourth of aid for trade commitments. Donors provided about half of aid for trade commitments to middle income countries, mostly from bilateral sources.

The supply of aid for trade has increased over the 2002/2005-2008 period by 21 percent in real terms. Low-income countries saw their share of total aid for trade increase from 44 to 54 percent, while 59 percent (US$ 4.7 billion) of the additional funds went to Sub-Saharan Africa (OECD and WTO, 2009). It is important to note that the OECD definition of aid for trade that is used here is a very broad measure of trade-related assistance and therefore overstates the overall magnitude of aid for trade. It includes _all_ financing of infrastructure with the exception of water and sanitation projects. As infrastructure accounts for a large share of total ODA expenditures, this inflates the aggregate numbers for aid for trade. The reason for the use of a wide definition is

> 8 This “sectoral allocable aid” excludes funds for debt relief, administrative costs and budget support, as well as resources that are allocated to support trade finance. The G20 mobilized a collective US$250 billion effort to support trade finance during the crisis. Access to such finance is an important determinant of the costs of trade and the ability of exporters to operate.

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