Aid for Trade Flows and Wage Inequality in the Manufacturing Sector of Recipient-Countries

Abstract

This study contributes to the extant literature on the effectiveness of Aid for Trade (AfT) flows in recipient-countries by examining the effect of these resource flows on wage inequality in the recipientcountries’ manufacturing sector. The analysis shows that AfT interventions help reduce wage inequality in the manufacturing sector of countries that have liberalized trade policies, enjoy greater trade openness, experience higher exports of labor-intensive manufacturing products, higher exports of low-skill-intensive manufacturing products, and greater exports of high-skill-intensive manufacturing products. Additionally, AfT interventions contribute to moderating the negative effect of export product concentration (e.g., on primary products) on wage inequality in the manufacturing sector. Finally, AfT flows reduce wage inequality in the manufacturing sector of countries that import manufacturing products (including machinery and transport equipment goods) or enjoy wider multilateral trade liberalization.