This chapter reviews the Trade as an Engine of Development action area of the Addis Ababa Action Agenda (AAAA) including progress, persistent challenges, and emerging areas as the international community prepares for the Fourth International Conference on Financing for Development (FfD4). It finds that South-South trade has surged, underpinned by digitalisation and regional integration, while trade facilitation measures have significantly reduced costs. However, the share of global trade in developing countries has stagnated since the 2010s, hindered by crises, decoupling, and technical barriers. LDCs face persistent challenges, including limited diversification, high tariffs, and the impacts of environmental norms. Emerging trends highlight trade’s role in digital, environmental, and social transitions, with Aid for Trade increasingly aligned to Sustainable Development Goals.
Global Outlook on Financing for Sustainable Development 2025
Abstract
Key trends
The volume of global trade has grown, but the relative share of developing countries has remained stable.
Between 2015-23, total trade in goods and services increased by USD 10 trillion, or about 50%, up from USD 21 trillion in 2015 to USD 31 trillion in 2022 and down slightly to USD 30 trillion in 2023. At same time, the trade to gross domestic product ratio has remained stable at about 29.1% in 2023, comparable to the 2008 ratio of 29.6% (D’Andrea et al., 2024[1]). Least developed countries (LDCs) still represent only 1.0% of global trade and small island developing states (SIDS) just 3.2% (UNCTAD, 2024[2]).
Source: UNCTAD (2024[2]), data available at: SDG Pulse, 2024, https://sdgpulse.unctad.org/trade-developing-economies/.
The global trade financing gap is widening.
The global trade finance gap, defined as the difference between requests and approvals for financing to support imports and exports, is now estimated to be USD 2.5 trillion annually, a substantial increase from 2016 and 2018 estimates of USD 1.5 trillion annually (ADB, 2023[3]).
Source: ADB (2023[3]), “2023 Trade Finance Gaps, Growth and Jobs Survey”, https://www.adb.org/publications/2023-trade-finance-gaps-growth-jobs-survey and WTO (2024[4]), Trade and tariff data, https://www.wto.org/english/res_e/statis_e/statis_e.htm.
Aid for Trade is growing but support to LDCs remains insufficient.
The total volume of Aid for Trade disbursements and the volume of support to LDCs reached a record of USD 51 billion and USD 14 billion (29% of the total) in 2022. Since the initiative was created in 2006, Aid for Trade disbursements have cumulated USD 689 billion, with 56% in economic infrastructure, 42% to build productive capacity, and 2% for trade policy and regulations. Of this total, USD 189 billion in disbursements went to LDCs and other low-income countries.
Source: Author’s calculations based on OECD/WTO (2024[5]), Aid for Trade at a Glance 2024, https://doi.org/10.1787/7a4e356a-en.
Key performance indicators
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In 2022, Aid for Trade support to LDCs reached a record USD 14 billion in disbursements but represented a smaller share of total Aid for Trade than in 20211, which was at odds with the goal of doubling Aid for Trade disbursements to LDCs from 2018 levels by 2031. |
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From 2012 to 2023, LDCs' share of global trade hovered at about 1% – far from the target of 2% (UNCTAD, 2024[2]). |
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Digitally delivered services in LDCs have increased by 44% since 2015 though in the rest of the world, these services increased by 100% over the same period. As of 2024, the volume of digitally delivered services in LDCs is 73% smaller than the global average volume2 (UNCTAD, 2024[2]). |
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For 84 of 135 countries, the worldwide weighted average tariff under preferential status decreased over the period from 2015 to 2022.3 |
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Note: Selected quantifiable commitments. Annex Table 5.A.1 contains the full list.
1. Author’s calculations based on OECD/WTO (2024[5]), Aid for Trade at a Glance 2024, https://doi.org/10.1787/7a4e356a-en.
2. Authors’ calculations based on https://public.tableau.com/app/profile/tinotenda.mataire/viz/Digitallydeliveredservices/Dashboard2.
3. Authors calculations based on UN DESA (2024[6]) SDG Indicator database, https://unstats.un.org/sdgs/dataportal/database.
Resource mobilisation potential
LDCs represent 1% of global trade, though they are home to 14% of the world’s population. Doubling their share of trade to 2% could generate USD 230 billion per year.
It is predicted that the African Continental Free Trade Area (AfCFTA) will increase African countries' trade income by USD 450 billion by 2035 and boost intra-African trade by more than 81% (Baker McKenzie, 2024[7]).
The value of green exports from Africa such as green hydrogen, critical minerals and export credits could reach over USD 15 billion annually by 2050 (McKinsey & Company, 2024[8]).
Trade increases women’s wages and economic equality. Removing import tariffs would produce average real income gains for households headed by women that are 2.5% higher than for households headed by men. In Burkina Faso and Cameroon, for instance, such an increase for women-headed households would be equivalent to one year’s spending on education or health (Rocha and Piermartini, 2023[9]). Reduction of gender-biased or so-called pink tariffs could reduce average tariffs by 6 percentage points in some countries (World Bank Group and World Trade Organisation, 2018[10]).
Developing countries have been the main driver of global trade growth.
Trade growth has been largely driven by trade between developing countries. Trade between developing countries as a share of global trade rose from 9.8% in 1995 to 24.6% in 2022. It represented 54% of all developing countries’ exports. Developing countries also are increasingly integrated into the global economy, with backward and forward global value chain (GVC) participation rates increasing from 25.2% of total exports in 1995 to 44.6% in 2015 and 48.7% in 2022. These increases translated into a tripling of trade in intermediary goods since 2000 (UN, 2024[11]). Services trade has become a source of strong growth for developing countries in combination with digital trade opportunities. For instance, digitally delivered services exports doubled over 2005-15 and doubled again from 2015-23. After two decades of strong growth, however, the developing country share of world trade remained flat in the 2010s and early 2020s at about 40% and at 30% for services (UNCTAD, 2024[2]).
Regional trade integration between and with developing countries has progressed along with trade flows. South-South trade increased from USD 600 billion in 1995 to USD 5.3 trillion in 2021, and its volume now exceeds that of North-South trade and is growing faster than the world average (UNCTAD, 2023[12]). By eliminating barriers to trade in Africa, the AfCFTA could lift 30 million people out of extreme poverty and another 68 million people out of moderate poverty (African Union, 2024[13]).Interregional trade today, especially in developing countries, is often underestimated by official data sources. For example, the actual scale of interregional food trade in West Africa is much higher than reported in official statistics due to a substantial portion which occurs informally and goes unrecorded.
Helped by improved trade facilitation, tariffs and trade costs continue to decline.
It is estimated that full implementation of the World Trade Organization (WTO) Trade Facilitation Agreement (TFA), which entered into force in 2017, could reduce trade costs by an average of 14.3% and boost global trade by up to USD 1 trillion per year, with the biggest gains in the poorest countries (World Trade Organization, 2015[14]). As of 2024, implementation of TFA commitments is at 80.2% globally;74.1% for all developing countries; and 49% for LDCs alone (World Trade Organization, 2024[15]).
After two decades of decreases, when tariffs fell from 13.1% in 1996 to 9.1% in 2015, the simple average most-favoured nation tariff applied by WTO members stood at 8.8% in 2022. In 2022, LDCs had duty-free access on 62.9% of tariff lines, a level that has been stable since 2015. SIDS enjoyed duty-free access on 74.3% of product lines in 2022, a 12% increase from 2015 (UNCTAD, 2024[16]). However, tariffs applied in LDCs (including preferences) are seven times higher than those in developed regions (UNCTAD, 2024[16]).
Trade costs have been generally declining. For example, the tariff weighted average in LDCs has declined from 10.6% (most favoured nation) and 8.7% (including preferences), in 2015 to 9.2% and 7%, respectively, in 2022 (UN, 2024[17]).
The WTO's 2022 Agreement on Fisheries Subsidies aims to reduce the approximately USD 22 billion spent annually on harmful subsidies, thereby showcasing the potential of trade reform to redirect resources effectively (UN, 2024[11]). In 2023 and 2024, 52 WTO members ratified the agreement (World Trade Organization, 2024[18]).
Supporting developing countries’ trade capacities through untying
One of the objectives of the DAC Recommendation on Untying Official Development Assistance (ODA) is to contribute to the integration of developing countries in GVCs by giving local companies access to ODA contracts and by promoting local procurement. In 2021-22, suppliers from developing countries were awarded 53% of the total number of untied contracts funded by DAC donors and 38% of the total in terms of value.
Developing countries have been increasingly marginalised in global trade amid the turmoil following the global financial crisis and the COVID-19 pandemic.
The 2008-09 global financial crisis and, more recently, COVID-19 pandemic-related trade tensions put an end to the rapid growth of the developing country share of global trade, which had been driven by the extension of GVCs and trade in intermediate goods in the early 2000s. Since the COVID-19 crisis, risks of decoupling have increased, with blocks experiencing 4%-6% lower growth in trade than internal trade within blocks (World Trade Organization, 2023[19]). Friend-shoring has risen by 6% since 2021. Near-shoring has shown stability with no clear trend observed, but trade concentration has increased by 5% over 2021 (UN, 2024[11]).
Technical barriers are increasing and affect 70% of all trade (UNCTAD, 2024[16]). Potentially trade-distortive state interventions surged after the pandemic and added to historical forms of subsidies. For example, agricultural support measures peaked at USD 851 billion in 2022 in high-income and emerging countries, hindering the competitiveness of LDCs and their global trade participation (OECD, 2023[20]). The growing use of government subsidies by large (OECD and non-OECD) economies to promote strategic industries also will likely undermine the trade competitiveness of most developing (and non-developing) countries that do not have the same fiscal space to compete subsidy with subsidy. It is for this reason that the International Monetary Fund, the OECD, the World Bank and the WTO have called for a co-ordinated approach towards subsidies (IMF; OECD; World Bank; World Trade Organization, 2022[21]).
The establishment of new environmental norms in advanced economies may also negatively impact developing countries’ export capacities. For example, a study by the African Climate Foundation (2023[22]) of the impact of the European Union (EU) Carbon Border Adjustment Mechanism estimated it could result in a decrease in African exports to the EU of as much as 3.1% to 13.9% depending on the sector. Sectors in several countries, such as the cacao sector in Côte d’Ivoire and the coffee sector in Ethiopia are already impacted by the transition cost (Hochet-Bodin, 2024[23]). While such new norms in advanced countries aim to achieve legitimate environmental objectives, developing countries need additional support to cope with the adjustment cost (African Climate Foundation, 2023[22]).
Certain groups remain marginalised in international trade.
Fast-growing developing countries have driven the expansion of both trade and investment, but this growth has largely bypassed the poorest countries (OECD, 2023[20]). In 2021, the value of LDCs’ services exports was 32% below pre-pandemic levels, reflecting the ongoing impacts of the crisis in these countries (UN, 2024[24]). Disparities in trade also persist. Male entrepreneurs are almost twice as likely as female entrepreneurs to internationalise (Korinek, Mourougane and Lieshout, 2023[25]), and tariffs continue to disproportionately affect sectors employing women and products consumed by women (World Bank Group and World Trade Organisation, 2018[10]).
Developing countries’ exports remain poorly diversified and with low value-added.
In 2022, the exports concentration index of developing economies stood at 0.10 (and at 0.22 for LDCs and 0.26 for landlocked developing countries), which was notably higher than the 0.07 concentration index of developed economies. On average, about 65%% of the exports of LDCs and SIDS were directed to their top ten trading partners compared with 55% for developing countries as a group. In 2022, manufactured goods accounted for 66% of total merchandise exports from developing economies, up from 58% in 2012. Although the share of manufactured goods in total exports of LDCs increased from 22% in 2012 to 35% in 2022, LDCs’ merchandise exports are largely focused on simple manufactured products such as textiles and clothing (UNCTAD, 2024[2]).
The reform of the multilateral trading system is still ongoing.
WTO members committed at the 2022 Ministerial Conference, and reaffirmed this commitment in the Abu Dhabi Ministerial Declaration in 2024, to work towards necessary reform of the WTO to improve all its functions and to acknowledge the progress made in this regard. The General Council will report progress at the 2025 Ministerial Conference on the work done to date to improve the daily functioning of WTO councils, committees and negotiating groups with a view to enhancing the WTO’s efficiency and effectiveness and facilitate members’ participation in WTO work. WTO members also are holding discussions aimed at having a fully and well-functioning dispute settlement system accessible to all members.
Trade is a driver of the triple transition (digital, environmental and social) and has an increasing role to play in sustainable development.
Trade and digital transformation
Digital connectivity has been crucial in cutting trade costs. A 1% increase in digital connectivity lowers domestic trade costs by 0.3% and international trade costs by 0.1%. Aid for Trade has significantly boosted information and communication technology support, with disbursements up 31% since 2020 and commitments having nearly doubled over five years (OECD/WTO, 2024[5]). Globally, exports of digitally delivered services nearly quadrupled since 2005, hitting USD 3.9 trillion in 2022 to represent 54% of total global services exports and surpassing growth in goods and other services exports (Botwright and Dabré, 2024[26]).
Trade and environmental transformation
In 2021-22, bilateral donors committed USD 20 billion to climate-related Aid for Trade, which accounted for 67% of total pledges. Pledges for mitigation projects increased by 18% but slightly declined for adaptation efforts. In 2021-22, 80% of Aid for Trade focused on mitigation, suggesting room for more adaptation funding (OECD/WTO, 2024[5]). Demand for critical minerals for clean energy is increasing and could potentially cause shortages. African countries, with 30% of global mineral reserves, aim to use the AfCFTA to build regional value chains and boost economic development (Botwright and Dabré, 2024[26]). Trade agreements increasingly include sustainability considerations – for instance the 2024 Agreement on Climate Change, Trade and Sustainability – although the harmonisation of standards and carbon border adjustment mechanisms remains a challenging issue.
Trade and social transformation
In the Abu Dhabi Ministerial Declaration, WTO members reiterated the centrality of the development dimension in the work of the WTO and the role that the multilateral trading system could play in contributing to achievement of the Sustainable Development Goals (SDGs). Aid for Trade projects target all SDGs: SDG 9 (industry, innovation and infrastructure) attracted the largest amount of Aid for Trade disbursements, followed by SDG 7 (affordable and clean energy), SDG 2 (zero hunger), SDG 11 (sustainable cities and communities), and SDG 8 (decent work and economic growth) (OECD/WTO, 2024[5]). A number of social and technological innovations can take place in GVCs, which could be made more resilient through adequate policies (Schwellnus, Haramboure and Samek, 2023[27]).
Note: The data points are mainly drawn from the UN’s Sustainable Development Goals Extended Report 2024 and its statistical annexes. Trend data in are in constant USD 2015 prices unless otherwise indicated.
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