Turner, L. 2013. Are donors Assessing the impact of aid for trade on poverty? GREAT Insights, Volume 2, Issue 5. July-August 2013. Maastricht: ECDPM
Although on the whole Aid for Trade (AFT) is good for growth and poverty reduction, behind the averages there may be winners and losers. Yet we find that development partners are not adequately exploring the implications of their interventions on poverty and/or the poor.
Aid for Trade (AFT) aims to support countries to take advantage of trading opportunities, help countries grow, and contribute to reducing poverty. The underlying assumptions are that: (i) AFT expands exports and imports; (ii) increased trade raises productivity and incomes; and (iii) rising incomes lift people out of poverty (1). On average, “trade is good”. However, while this chain of logic may hold in long-run cross-country analyses, behind the averages there are winners and losers. While there has been much research and analysis on the issue, development partners are not adequately assessing the impact of their projects and programmes on poverty and/or the poor.
2. Trade, growth and poverty
Trade can be an important engine of economic growth and has the potential to reduce poverty. There is a large body of empirical literature over the last few decades examining the relationship between trade, growth and poverty (2). On average, trade reform (e.g. liberalisation) and trade expansion leads to higher economic growth and poverty reduction in the long run. Few countries have grown over the long term without experiencing a large expansion in trade (3). However, the relationship between trade reform and expansion, growth and poverty is complex and case specific, making systematic empirical investigations difficult (4).
The impact of trade reform and trade expansion on poverty and the poor are context-specific, depending on many factors including the structure of the economy – e.g. whether trade-induced growth benefits sectors where the poor live and are economically active, the labour-intensity of production, the different roles particular groups hold in those markets affected by the interventions, the extent to which growth translates into jobs, consumption patterns of the poor, etc. (5). There are risks and opportunities for particular poor groups (and regions) as increased trade changes the profile of livelihood possibilities. These factors and others affect the distribution of the benefits of income growth and the poverty elasticity of growth (6). Behind the averages, trade reform may benefit some while adversely affecting others, particularly in the short to medium term. This may reduce the poverty reduction impact of trade and may further embed existing inequalities (7). As stated by Basnett et al. (2012), “the aggregate and distributional impact of trade reforms depends significantly on complementary policy choices…. for example, if increased government revenue is spent on social programmes aimed at distributing the potential gains from trade more widely, trade reforms are likely to have a greater impact”.
3. Aid for Trade and assessing impact
The WTO AFT Task Force, that came about as a result of the WTO Hong Kong ministerial, provided the rationale for AFT as “assisting developing countries to increase exports of goods and services, to integrate into the multilateral trading system, and to benefit from liberalized trade and increased market access. Effective AFT will enhance growth prospects and reduce poverty in developing countries, as well as complement multilateral trade reforms and distribute the global benefits more equitably across and within developing countries”.
While development partners and developing countries consider poverty reduction an ultimate goal of AFT, tracing the links from AFT to trade, growth and poverty reduction, and establishing causal attribution, is a major challenge. Cadot and Newfarmer (2011) consider that to effectively assess the impact of AFT, multiple approaches (“a prism of evaluation approaches”) are required. These include case studies, aggregate cross-country assessments, sectoral and programme evaluations, impact assessments, and project evaluations (8).
4. Assessing development partner evaluation practices
In 2012, Traidcraft and CAFOD commissioned Saana Consulting to explore the evaluation practices of two large AFT development partners – the UK Department for International Development (DFID) and the European Commission (EC) (9). The paper explores how DFID and the EC assess the impact of AFT projects and programmes on poverty and/or poor and excluded groups. In addition, the paper studies the extent to which AFT projects and programmes are designed, in the first place, based on analysis of potential effects on poverty and/or the poor.
Our study finds that attributing outcomes and impacts (e.g. increased trade and poverty reduction) to programmes and projects presents the biggest challenge for development partners (both bilateral and multilateral) in evaluating AFT ((10). Development partners find it challenging to design convincing intervention logics that link project objectives with more strategic, long-term development outcomes and impacts (11). In doing evaluations, they are faced with problems of attribution (linking interventions with trade, economic and poverty related impacts); the substantial time lag between design, implementation and impact; lack of data; and problems quantifying intangible capabilities. This is not surprising given it is “more difficult to assess the sector or economy-wide impacts of a specific project than to assess its performance in a specific context, given the complex array of extraneous variables influencing outcomes (OECD, 2011) (12)”.
The key findings and conclusions in the paper are presented below:
Drawing on the analysis above, the following recommendations may be of interest for development partners (especially the EC and DFID) when designing and implementing AFT programmes:
1. OECD (2011). Trade for Growth and Poverty Reduction: How Aid for Trade Can Help. Paris: OECD.
2. For example: OECD (2012). Succeeding with Trade Reforms: the Role of Aid for Trade. Paris: OECD; Newfarmer, R. and Ugarte, C. (2013). Aid for Trade Results: Through the Evaluation Prism. Chapter 5: Aid for Trade at a Glance – Connecting to Value Chains. Paris: OECD; Basnett, Y., Engel, J., Kennan, J., Kingombe, C., Massa, I. and te Velde, D.W. (2012). Increasing the effectiveness of Aid for Trade: the circumstances under which it works best. ODI Working Paper 353. London: ODI; Newfarmer and Sztajerowska (2012). Trade and Employment in a Fast-changing World. Chapter 1: Policy Priorities for International Trade and Jobs. Paris: OECD.
3. Higgins, K. and Prowse, S. (2010). Trade, Growth and Poverty: Making Aid for Trade Work for Inclusive Growth and Poverty Reduction. London: ODI.
4. Bird, K. (2004). A Framework to Analyse Linkages between Trade Policy, Poverty Reduction and Sustainable Development. London: ODI.
5. Basnett, Y. et al. (2012); OECD (2011). Trade for Growth and Poverty Reduction: How Aid for Trade Can Help. OECD: Paris.
6. Newfarmer, R. and Ugarte, C. (2013); Bird (2004); Turner, L., Nguyen, N., and Bird, K. (2008). An Overview of Ex Ante Tools for Assessing the Impact of Trade Liberalisation on the Poor. London: ODI.
7. Higgins, K. and Prowse, S. (2010).
8. Cadot, O. and Newfarmer, R. (2011). Does it Work? Aid for Trade through the Evaluation Prism. Trade Negotiation Insights Vol. 7. No. 10. Geneva: International Centre for Trade and Sustainable Development.
9. Turner, L. and Rovamaa, L. (2012). Aid for Trade: Reviewing EC and DFID Monitoring and Evaluation Practices. London: Saana Consulting, Traidcraft and CAFOD.
10. OECD-WTO (2011). Aid for Trade at a Glance – Showing Results. Paris: OECD.
11. OECD (2011). Trade for Growth and Poverty Reduction: How Aid for Trade Can Help. OECD: Paris.
12. OECD (2011). Trade for Growth and Poverty Reduction: How Aid for Trade Can Help. OECD: Paris.
13. ADE (2013). Evaluation of the European Union’s Support to Private Sector Development in Third Countries. Final Report. March 2013.
14. Particip (2013). Evaluation of the European Union’s Trade-related Assistance in Third Countries. Final Report. April 2013. See article by Peter Frøslev Christensen in this issue.
15. Higgins, K. and Turner, L. with Engel, J. (2010). Integrating Poverty and Social Analysis into Aid for Trade Programmes: An Overview. ODI Briefing Paper. London: ODI.
16. Newfarmer, R. and Ugarte, C. (2013).
This article was published in Great Insights Volume 2, Issue 5 (July-August 2013)