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Source: Small Island Developing States

3 July 2019: A publication by the Organization for Economic Co-operation and Development (OECD) reports that over half of developing countries surveyed have made progress in diversifying their economies since the 2006 launch of the Aid for Trade Initiative by the OECD and the World Trade Organization (WTO). Diversification helps to economically empower marginalized groups, the authors note.

The report titled, ‘Aid for Trade at a Glance 2019: Economic Diversification and Empowerment,’ shares the findings of a survey of 88 developing countries. Most of the progress registered in 2019 was in the agricultural sector, followed by services and industry. The publication finds that every USD invested in aid for trade has generated USD 8 worth of exports in developing countries and nearly USD 20 of exports in LDCs, depending on the country and the type of investment. Even though many developing countries still face supply-side constraints, the report notes that open, rules-based trading contributes to global welfare by helping to diffuse goods, services, technology and knowledge. The authors emphasize that empowering small business, youth and women to participate in and benefit from trade is key for achieving the SDGs.

The report also notes that the progress to date is geographically uneven, and the least developed countries (LDCs), small island developing States (SIDS), landlocked developing countries (LDCs) and countries affected by conflict still face difficulties in using international commerce to diversify their economies.

Aid for trade is found to support countries’ ability to eventually graduate from LDC status. Although in the past 30 years only five countries have graduated from LDC status, two more are expected to do so in 2020-2021 (Vanuatu and Angola) and ten others, the text says, are moving in the same direction at a good pace. The remaining 35 LDCs show little progress towards readiness to graduate.

Moving forward, the publication calls for paying greater attention to the social and environmental impact of economic diversification through:

  • better incentive frameworks to attract more and better private investments;
  • targeted social policies to support the reallocation of resources;
  • government interventions that address market, policy, and institutional failures; and
  • policy reforms targeted at reducing trade costs, coupled with better access to infrastructure and health.

In his remarks on the report launch, OECD Secretary-General Angel Gurría observed that “rising trade tensions and protectionism are hurting growth prospects and any shift away from rules-based trade hits the most vulnerable countries and people hardest.” [OECD Press Release] [Publication: Aid for Trade at a Glance 2019: Economic Diversification and Empowerment]

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