LAUSR

Purpose This study aims to examine how aid for trade policy and regulations (AfTPR) contribute to achieving Sustainable Development Goal (SDG) target 8.1 (sustain per capita economic growth) and whether the effectiveness of AfTPR is conditional to the stable political environment. Design/methodology/approach This paper uses a widely accepted endogenous growth framework and applies panel data fixed effects and two-step difference and system generalized method of moments estimation strategies on panel data of 50 developing countries over 2005–2017. Findings The findings of the study confirm that aid to trade policy promotes sustainable economic growth in developing countries, but this category of development assistance is only effective and significant for low and lower middle-income (LLMI) economies. The positive and significant effect of AfTPR in upper middle-income countries is conditional to their level of political stability. Under a stable political situation, the positive effect of AfTPR on sustainable growth remains almost same for the LLMI countries, whereas for the upper middle-income countries this growth effect reached almost double. Research limitations/implications International trade is considered as a driver for inclusive and sustainable economic growth, whereas aid for trade is acknowledged for its prospective contribution toward achieving these goals. The findings have dominant policy implications for the international development organizations and donors, which recommend that it is more desirable to transmit aid toward developing and implementing trade policy and regulations as per capita economic growth improves in the aid recipient countries. Originality/value According to the authors’ knowledge, no prior study empirically analyzes the effect of AfTPRs on SDG target 8.1.