History has shown that trade can be a powerful engine for economic growth and, depending on its pace and pattern, reduce poverty. Trade can therefore be an important tool to help countries reach their development goals. However, particularly in the case of the least developed countries, harnessing the power of trade often remains challenging.

Trade can be a powerful engine for economic growth, poverty reduction and development. Although debated, this is the main conclusion of a large body of empirical literature on trade and growth. Harnessing the power of trade is often difficult for developing countries, particularly the least developed ones, because of supply-side domestic constraints. The Aid for Trade Initiative launched in 2005 at the Hong Kong WTO Ministerial Conference addresses these constraints.

This report explains how Aid for Trade can foster economic growth and reduce poverty, and why it is an important instrument for a development strategy that actively supports poverty alleviation. In the face of limited financial resources and political capital for reforms, developing countries must prioritise among the many needs and tackle the most binding constraints to trade expansion. The report describes the diagnostic tools available, evaluates their strengths and weaknesses, and suggests a dynamic framework to guide the sequencing of reform and donor support.

The WTO Hong Kong Ministerial Declaration clearly makes the expansion of developing countries’ trade the core objective of the Aid for Trade Initiative. However, as emphasised by the Task Force on Aid for Trade the purpose of the Initiative is not to support trade per se, but trade inasmuch as it contributes to growth and poverty reduction. This chapter examines the four objectives which are among the most common and mirror those that find strong support in the trade and growth literature.

This chapter explains the potential impact of Aid for Trade on poverty reduction. It examines various policy measures that can best reinforce the impact of trade on poverty reduction (e.g. building productive capacities, connecting the poor to markets and addressing the distributional impact of adjustment costs), particularly in cases where these measures affect the most vulnerable segments of the population. The need for a tailored, country-based approach to economic integration is underlined.

This chapter describes the diagnostic tools and methods that can be used to pinpoint the trade-related needs and constraints preventing developing countries from expanding trade. The list of trade-related needs is often very long. Thus, there is a need to identify the most binding constraints and prioritise reforms. The chapter suggests combining the different diagnostic tools and methods in an appropriate framework to achieve this prioritisation. Combining them can help overcome the shortcomings and limitations of each. It can also provide evidence for use in confirming the conclusions of any single approach and reduce the risks of misdiagnosis or capture by vested interests. Finally, combining them can identify the most binding constraints on which aid-for-trade interventions and reforms should focus first.

This report has shown that trade is central to economic growth and poverty reduction, with Aid for Trade providing a framework within which the opportunities of trade can be more fully realised. In this concluding chapter, the report also points to a range of other policy actions that will be needed in order for Aid for Trade to be fully effective. Aid for Trade, delivered in conjunction with effective complementary policies that reduce the risk and vulnerability of the poor, can help developing countries translate opportunities to trade into economic growth and poverty reduction.