Description:
This paper examines how aid-for-trade
programs can help to magnify the growth benefits that
developing countries can reap from trade reform and global
integration, with a special emphasis on the Caribbean
region. The first part discusses various rationales for
trade-related aid, viewed both as a compensatory scheme
(aimed at cushioning the impact of revenue cuts and
adjustment costs) and a promotion scheme (aimed at
alleviating supply-side constraints). In the latter case,
particular attention is paid to the role of infrastructure
as a constraining factor on trade expansion. The second part
discusses the relevance of aid-for-trade arguments for
Caribbean countries and identifies a number of specific
issues for the region. The third part illustrates the
potential growth effects of aid-for-trade programs with
simulation results for the Dominican Republic -- a country
where infrastructure indicators remain relatively weak. The
results illustrate the potentially large growth benefits
that a temporary and well-targeted aid-for-trade program can
provide to countries of the region.