Developing countries need more support to navigate growing turbulence in global trade

The benefits of international trade for developing countries are well established. Over the past 30 years, low- and middle-income countries doubled their share of global exports to 30 percent. Over the same period, the share of the world’s population living in extreme poverty declined dramatically -- from 47 percent to just 10 percent. One billion people climbed out of poverty.

But today, we face an urgent question. Can those benefits be sustained? The global trade landscape is rapidly being transformed by rising geopolitical tensions, rapid advances in digital technology, and the existential threat of climate change. These shifts hold risks for developing countries, but also opportunities.

This uncertain environment highlights the critical importance of sustaining their ability to reap the poverty-reducing benefits of international trade and investment. Among the most important vehicles for that support is Aid for Trade, an international initiative that delivers the financing and technical expertise needed to help developing and least developed countries integrate more fully into the global economy, contributing to economic growth and rising living standards. This week, policy makers drawn from all corners of the trade and development finance fields gathered in Geneva under the auspices of the World Trade Organization for the biennial Aid for Trade Global Review.

From its founding in 2005 through 2022, the WTO-led Aid for Trade initiative has mobilized significant resources, directing an estimated $650 billion to help developing countries leverage trade for development, with disbursements hovering around $40 billion annually from bilateral donors, regional development banks, and multilateral institutions. Gross annual disbursements of the World Bank’s share of Aid for Trade funding doubled in real terms between 2010 and 2022, from US$8 to US$16 billion. This represents close to a third of total aid for trade, making the World Bank Group the single largest source of A4T funding globally. Support from the International Development Association, the World Bank’s funding arm for the world’s poorest countries, reached a cumulative US$97.8 billion over the 2006-22 period.

The World Bank’s A4T support takes a multiplicity of forms. As the Figure below shows, a significant share of World Bank Aid for Trade support has been directed to addressing supply-side constraints in transport, storage and energy, sectors that are critical to improved economy-wide performance, as well as to boosting export capacity in agriculture, forestry and mining, where the scope for adding value to areas of traditional developing country comparative advantage remains significant.

Examples of World Bank Aid for Trade support include the building of a trade corridor boosting connectivity and driving down trade costs in neighboring counties in West Africa; ensuring that trade facilitation reforms in the Pacific Islands boost the exports of female-led firms; performing e-readiness diagnostics in a range of African Least Developed Countries; and helping Timor-Leste leverage its recent accession to the WTO to diversify its export basket in goods and services alike.

While the Aid for Trade initiative is widely seen to have bolstered the productive capacity and negotiating agency of recipient countries, there is no room for complacency. The sharp recent rise in trade protective and investment distortive measures and associated signs of a fragmenting world economy run the very real risk of further marginalizing many developing countries, particularly the poorest ones. Deepened international cooperation, innovative partnerships, and targeted interventions remain essential to address these challenges. Simply put, now is not the time to drop the ball on the Aid for Trade front. Such flows need to be scaled up if the weakest members of this organization are to reap the development dividends that trade can offer.