Growth and development in developing countries: Policies for efficiency and effectiveness in the Asia Pacific

Trade-related development priorities in developing countries are to improve the business environment and make these countries more resilient and responsive for social and economic development. It is to support these countries' rise in regional and global integration, create economies of scale, removal of trade constraints, enhance export diversification and promote economic growth. Some of the challenges faced in developing the business sector are lack of productive capability in managing these enterprises, limited access to finance, poor infrastructure and access to modern technology, competition, marketing problems, excessive government bureaucracy and lack of enabling trade policies. Regional integration of Australia and New Zealand with Asia and the Pacific economies are evident in their strong historical, strategic and economic ties for social and economic development. Entrepreneurial development through small- and medium-scale enterprises (SMEs) has become a crucial component in enhancing developing countries’ industrial transformation. Aid donors have therefore emphasized the role of private sector development as a main sectoral impetus through aid for trade (AfT) initiatives.

Notably, the development of entrepreneurship has accelerated since 2001, which is evident in the marked improvement of trade levels and growth in developing countries. Development finance has been aimed at private sector development to strengthen domestic institutional capacity to support entrepreneurial development, overcome trade obstacles, and expand the recipient countries’ trade globally. These initiatives are critical in enhancing SMEs’ performance making this sub-sector more vibrant in order to maximise its contribution to economic growth. Albeit these developments, empirical studies on the evaluation of regional AfT effectiveness are specifically lacking in the case of the Asia-Pacific region. This paper assesses the effectiveness of AfT development finance in tackling trade-related binding constraints in the case of Asia-Pacific countries. The formulation of a gravity framework trade model provides an empirical basis for understanding this region’s bilateral trade and the factors that impact trade-aid linkages, trade facilitation, and geographical constraints. Using the Organisation for Economic Co-operation and Development AfT trade data for the period 2002 to 2013, the findings underscore some important policy implications for entrepreneurial development and how AfT can be better targeted to improve the performance of SMEs, boost trade, and enhance private sector development and economic growth in Asia-Pacific countries.

KEYWORDS: Aid for trade; Gravity trade model, Small and medium enterprises, Private sector development, Regional impact