TRADE AND AID: Partners or Rivals in Development Policy?

Edited by Sheila Page

There is extensive research on how trade and aid can each contribute to development. But there is less understanding of how their effects interact. Calls for ‘trade not aid’ or ‘aid for trade’ suggest that they work in the same direction, that they are complementary and perhaps even substitutable. But experience of domestic policy makes it clear that markets and social spending are not equivalent, and may conflict.

Analysing both the differences in what trade and aid can do and the ways in which each can make the other more or less effective is timely. Not only are there opportunities of greatly increased aid at the same time as trade reform, but recent rethinking of aid priorities such as the report by the Commission for Africa (2005) suggests that more aid should go to developing the physical and institutional requirements for countries to be able to trade, while in trade policy, the failures of some countries to respondto purely trade-based policies such as improving access to markets are increasingly obvious, and aid is seen as a potential solution.

The authors start by analysing the current understanding of how trade and aid work, and then examine a range of specific examples of how one has been used to support the other and how both developed countries and developing countries have found difficulty in reconciling the different approaches. Some of the worst apparent conflicts come from badly designed aid or trade policies, not from intrinsic inconsistency, and there is evidence that aid can be used to assist in trading more effectively than it has been in recent years, and that the resulting trade may be ‘good for development’. But their roles are too different to subordinate either  entirely to the other, and for some of the major current aid recipients there are deeper issues, the inability to deliver the investment climate and leadership in institutional change that would be required for trade-based development to occur, as it did in earlier development successes. Trade and aid can be complementary, but they are not substitutes, and neither can replace effective national policy.

ISBN 10: 1 905017 22 7

ISBN 13: 978 1 905017 22 5

• Hardback • 301pp • 2005 • £125.00