Does Aid for Trade Matter for Lesotho’s Exports?

Abstract

Sub Saharan African (SSA) countries face severe economic challenges especially low economic growth rates, high trading costs, infrastructure deficit and poor trade performance. Lesotho is not an exception; thus development assistance is key in overcoming these challenges. Simultaneously, SSA countries are among the highest recipients of AfT, with rising share of AfT globally. Lesotho’s share of AfT has been rising and at the same time its trade has also been rising, hence it is necessary to establish if AfT impacts Lesotho’s exports performance. This study analyses the impact of bilateral AfT from selected seven countries to Lesotho on Lesotho’s exports from 2002 to 2022. The study uses the gravity model of trade, and precisely it applies the Poisson Pseudo Maximum Likelihood (PPML). The results show that AfT and other variables that affect export performance have a statistically significant impact on Lesotho’s exports. Specifically, a dollar increase in AfT significantly leads to an increase in Lesotho’s exports on average ceteris paribus. Therefore, Lesotho’s export performance may be further enhanced by maintaining and growing its aid for trade programs which will increase competitiveness, making targeted investments in important industries, launching capacity–building programs and easing trade restrictions. In this regard, AfT should be used for trade facilitation through building trade-related infrastructure, building the capacity of agencies involved in the formulation of trade policies and creating a conducive trading environment. Addressing these will go a long way in reducing trade costs and improving supply chain efficiency.