Using the first comprehensive estimates of ad valorem tariff equivalent bilateral trade costs spanning the time period 2002–10, we examine whether the aid-for-trade (AFT) inflows reduce bilateral trade costs facing aid recipients. If so, we ask whether the trade costs reduction effects of AFT from bilateral and multilateral sources are complementary. By showing the extent to which the observed trade cost reduction effects of AFT from bilateral (multilateral) sources correlate with the magnitudes of AFT disbursements from multilateral (bilateral) sources, we present plausible explanation for the cross-country variations in the extent to which AFT promotes trade flows. Our findings have, thus, important policy implications for shaping future discourses on the coordination of disbursements for enhancing the effectiveness of AFT.
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