How Trade-Based Development Cooperation Can Become More Inclusive

International trade is undergoing significant shifts. Automation and digitalisation, the realities of climate change, national security concerns, conflicts, and threats to global governance are just some of the many risks transforming production, consumption, and labour markets. Consequently, trade and development objectives, including Aid for Trade (AfT) agendas are also transforming. AfT is no longer narrowly focused on boosting exports or addressing trade costs. Increasingly, trade support is combined with innovative financing geared towards enabling countries to capture value in the growing global green economy.

However, challenges remain in addressing the disconnect between targeting more macro trade outcomes and the practicalities of continuing micro-level challenges. (1)

Empirical trade and development studies show that providing aid for trade (AfT) can be effective in promoting trade and economic growth in low-income countries (LICs). OECD estimates have shown that an extra US$1 invested in AfT generates nearly an additional US$8 of exports for all developing countries, and US$20 for LICs. However, results vary significantly depending on the type of AfT intervention, the trade constraint and/or sector addressed, the recipient country’s income level, as well as the location.

AfT programmes and interventions typically target four broad areas: trade policy and regulations; trade facilitation such as simplifying burdensome customs procedures; infrastructure for trade such as transport and storage, communications, and energy; and building the productive capacity to improve countries’ export supplies. Our assessment of the evidence of effectiveness across these four areas (Table 1) shows medium to high levels of evidence on AfT for trade infrastructure, trade facilitation, and trade policy and regulations. It also shows recent emerging evidence (low to medium) on export promotion, but with clear gaps in the evidence on building productive capacity to trade.

Aid for Trade disbursements by category and region, 2021-2022

Looking at AfT priorities over the last two decades, AfT interventions focus largely on reducing the time and cost of trade, with the core objective of expanding trade. Priorities in recent WTO–OECD Global Reviews of AfT have increasingly mentioned supporting sustainable development goals. However, the impact of trade beyond its proven aggregate benefits, especially for the poor and disadvantaged, warrants more research to understand the factors that determine their ability to take advantage of positive opportunities or cope with losses that are generated from trade.

Specifically, the benefits and costs generated by trade for different sectors, locations, and groups remain hard to identify and track. There is a critical gap in identifying factors that determine the ability of the poor and disadvantaged to take advantage of positive trade opportunities or cope with losses that are generated by trade. Especially in the context of low- and middle-income countries, the poorest and most disadvantaged are not a small proportion of the population. (2)

For example, smallholder farmers face infrastructure deficiencies such as a lack of connecting roads to main trade centres; women and young people in precarious work may be the first affected as a consequence of trade shocks; people with disabilities and indigenous populations may remain excluded from the benefits of trade. While infrastructure investments can unlock export potential, without rural connectivity, the poorest do not gain. Similarly, regulatory reforms may lower costs for exporters, but if women-owned businesses or entrepreneurs with disabilities remain excluded, trade improvements may be reinforcing inequality.

The pitfalls of increased trade

The benefits of increased trade can be distributed via different transmission channels, for example, through production, labour, and consumption. (3) Although it is often hard to identify and track, both the gains and losses from trade tend to concentrate in particular regions, sectors, and groups of people.

Global evidence shows that overall trade liberalisation (removal or reduction of trade barriers) can help lift households out of poverty by creating more jobs, benefiting those at the lowest end of income distribution. However, workers and producers in sectors more exposed to import competition may turn out to be worse off: for instance, if workers lose their jobs or wages fall, or if producers suffer a fall in revenues. The adverse effects can be prolonged over a longer period, particularly for marginalised and vulnerable groups in society, which can increase inequalities.

Inclusive trade requires context-specific understanding how different groups engage with and are affected by trade. This is not simply a theoretical idea. While open trade can lower consumer prices and expand export markets, it can also erode livelihoods when local firms are unable to compete.

Focus on factors at the micro level

AfT interventions can expand trade by addressing significant constraints, e.g. those related to the time or cost of trading. For example, trade facilitation can reduce border delays. However, the impact of this trade expansion on poor and disadvantaged groups depends on critical trade-related micro-level factors or conditions that have attracted attention from various authors (such as labour market flexibility or competition in markets). (4) These factors relate to poorer groups’ ability to cope with changes or exploit opportunities from increased trade.

Returning to the example of small-scale farmers, their benefits may be driven by availability of complementary support which facilitates infrastructure, access to market information, and addresses asymmetries in bargaining power. For instance, trade facilitation may reduce costs and speed up exports, but small-scale producers who rely on intermediaries may see little benefit unless savings are passed along the supply chain. Outcomes would depend on their bargaining power, knowledge of markets, and the competitiveness of intermediaries. Pairing trade facilitation with broader support such as capacity building, market access, and innovative financing mechanisms can deliver real benefits to low-income communities.

There are also adjustment costs from trade shocks, among them job losses, declining wages, businesses closing down. Such costs are unevenly distributed and depend often on skills, mobility, and location. The pace of adjustment matters too, with impacts shifting over time.

Hence, inclusion must be intentional. Ths calls for investing in disaggregated data by gender, location, and vulnerability; systematically assessing who gains and who loses; and targeting measures to offset risks.

Recommendations for donors, national governments, and international organisations:

• Ensure that AfT programmes include an assessment of how interventions can impact different groups, including the poor and disadvantaged, identifying the enablers and barriers that shape outcomes across these groups.
• Analyse trade constraints in specific country and sector contexts. AfT programmes should consider the perspectives of different stakeholders; for example, smaller businesses, women-led businesses, firms or workers with disabilities, and ethnic communities.
• Recognise that the impact of trade policy and AfT programmes on trade outcomes varies for different groups, depending on the sector they are involved in, their location, exposure terms of exports and imports, etc.
• Assess how trade-related critical factors for inclusion apply to both firms and households. AfT programmes are often biased towards firm-based or productive outcomes. More effort is needed to measure the effects on households, particularly labour and consumption outcomes.
• Assess any risks for specific groups in advance of trade policy reform and AfT interventions to enable the targeting of support and the design and implementation of complementary measures to reduce the costs and/or improve benefits for the most vulnerable and marginalised groups.
• Collect and analyse data disaggregated by different groups (e.g. gender and disability) and assess impacts over time to inform targeted responses, including both policy reforms and AfT interventions.

References:

^{(1) See Saha et al. (2025). An Inclusive Lens on Aid for Trade - Institute of Development Studies}

^{(2) Inclusive Trade: Four Crucial Aspects - Institute of Development Studies}

^{(3) Winters L.A. (2000) ‘Trade and Poverty: Is There a Connection?’, in D. Ben-David, H. Nordstrom and L.A. Winters (eds), Trade, Income Disparity and Poverty, Geneva: World Trade Organization}

^{(4) Artuc, E.; Depetris Chauvin, N.; Porto, G. and Rijkers, B. (2019) Protectionism and Gender Inequality in Developing Countries, Policy Research Working Paper 9750, Washington DC: World Bank (accessed 28 February 2022). Pavcnik, N. (2019) ‘International Trade an Inequality in Developing Economies: Assessing Recent Evidence’, in C. Lagarde, L.A.V. Catão and M. Obstfeld (eds), Meeting Globalization's Challenges: Policies to Make Trade Work for All, Princeton NJ and Oxford: Princeton University Press Pavcnik, N. (2017) The Impact of Trade on Inequality in Developing Countries, NBER Working Paper 23878, Cambridge MA: National Bureau of Economic Research}