Today’s post is by Erik Solheim, Chair of the OECD Development Assistance Committee
Countries applying the right policies have achieved remarkable development success over the past 50 years. In the space of just two generations, South Korea went from being one of the poorest countries in the world to one of the richest by choosing the right policies on trade, investment and education. One of the main tasks of international organisations such as the OECD is to advise governments on policy. Research and policy papers should make a difference in the real world and improve people’s lives. So a recent report by our colleagues at the World Bank came as quite a shock to many in the “policy community”: nearly one-third of the Bank’s policy reports on economic sector work or technical assistance had never been downloaded and almost 87 percent was never cited. How about the OECD? How do we know that our work is having any influence?
One way is through regular assessments. The Development Assistance Committee for example wanted to know in more detail about the impact of the OECD contributions to the Aid for Trade Initiative led by the World Trade Organization, which aims to build the supply-side capacities and infrastructure that developing countries need to turn trade opportunities into trade flows. There is now abundant evidence of the effectiveness of aid for trade programs. According to research, 1$ in aid for trade is associated with an 8$ increase in exports for all developing countries, 9$ for the low and lower-middle income countries and as much as 20$ for the least developed countries. These results confirm the findings of other empirical studies and clearly signal the effectiveness of aid for trade. Aid-for-trade programs lower trade costs through additional infrastructure, better institutions such as customs and standards authorities, as well as more trade-friendly policies and regulations. It is particularly effective when recipient countries have stable macroeconomic policies and a business environment that encourages private investment. The big question is how the OECD contributes to this success.
Based on interviews, surveys and a literature review, independent evaluators recently reported that monitoring, policy analysis, and policy dialogue, OECD’s three main outputs in this area, are highly regarded. In terms of relevance, the evidence strongly suggests that our contributions have been central in establishing the credibility of the Aid-for-Trade Initiative, and in shaping the ways in which countries and organizations design and implement their aid for trade programmes. The monitoring activities were found to be the most effective, although the findings for policy analysis work and policy dialogue were also strongly positive.
As World Trade Organization Deputy Director General Agah commented “the OECD has been the linchpin of the Initiative.” In fact, many aid-for-trade practitioners and academics suggested that without the data from the OECD Creditor Reporting System, serious monitoring and evaluation of aid for trade would be close to impossible. They highlighted that data production and dissemination have the characteristics of a “global public good”, meaning a good which is accessible to everyone and whose consumption by one person does not reduce the amount available to other people. Allow me to return the compliment and add that the leadership of the World Trade Organization has been the key to the success of the Aid-for-Trade Initiative.
These finding are corroborated by an earlier OECD and World Trade Organization survey which concluded that “… donor agencies consider the monitoring of aid for trade either very useful or useful, while providers of South-South co-operation were also positive.”
The joint publications with the World Trade Organization are widely disseminated and more easily used by non OECD members. For instance, the 2013 joint publication Aid for Trade at a Glance: Connecting to Value Chains attracted 150,000 unique views on the websites, and on this blog, articles on Aid for Trade are among the most popular.
The evaluation also found the Aid-for-Trade Initiative has led to broad-based engagement from donors (bilateral, multilateral and providers of South-South cooperation), developing countries, in particular the Least Developed Countries, the private sector, non-governmental organizations and academics. It has encouraged closer cooperation between the development and trade community, including in non-OECD Member countries.
This partnership has resulted in greater awareness about the positive role of trade for economic growth and development, mainstreaming trade in development strategies, and alignment of aid around trade-related development priorities. Over the past decade, donors have more than doubled their assistance to aid for trade, reaching 53.8 billion US dollars in 2012.
Despite these positive results, there is room for improvement. OECD should further engage providers of South-South co-operation and the private sector. It is necessary to expand the focus from development assistance to development finance to mobilize more resources. We are working to improve the conditions for regional projects and better manage Aid for Trade and development results. The Global Review on Aid for Trade – the pre-eminent forum for discussing trade and development issues – must continue to put a spotlight on aid for trade and in particular these issues. Finally, with inclusive economic development becoming a central theme of the post-2015 development debate, there is a clear on-going role for aid for trade to contribute to more inclusive economic development.
To answer the question the headline asks, good policies can for sure lead to economic gains and development in the long term.