CDP Policy Review series

The paper discusses two ways of building productive capacity in LDCs: the manufacture of products to foreign buyers? specifications, and the integration of resource-based sectors into global value chains using backward and forward linkages. Using country examples the paper then shows how government and the international community can support the growth of productive capacity in various ways including research institutes and public research organisations. The paper argues that some LDCs should try to leapfrog into newly emerging sectors such as renewable energy.

The paper looks into the origins of Aid for Trade (AfT) and its objective of assisting developing countries to increase exports of goods and services and integrate into the multilateral trading system. Pointing out that AfT is not a new development fund nor a new aid category, the paper looks into the flows and impact of ODA resources allocated to AfT while focusing on LDCs as well as the effectiveness of AfT. Among the recommendations, the paper argues that most Aid for Trade is allocated to middle income countries and that a shift in this allocation pattern is needed to give more attention to LDCs, particular those that are not well integrated into the global market.