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| [PHOTO: 401(K) 2013/Flickr/CC BY-SA 2.0] |
Washington: Although the international economy has integrated
considerably in recent decades, a new database developed jointly by the United
Nations Economic and Social Commission for Asia and the Pacific (ESCAP) and the
World Bank reveals that trade costs fall disproportionately on developing
countries.
Although developing countries are becoming more integrated
into the world trading system in an absolute sense, they are starting from a
higher baseline and their relative position is deteriorating because the rest
of the world is moving more quickly.
The new Trade Costs database uses an innovative method to
estimate trade costs in agriculture and manufactured goods, opening new
analytical possibilities for policymakers and researchers interested in trade
integration. According to the research, trade costs are influenced to varying
degrees by distance and transport costs, tariff and non-tariff measures, and
logistics. The new data, which cover the time period 1995-2010, stress the
importance of supply chains and connectivity constraints in explaining the
higher costs and lower levels of trade integration observed in developing
countries.
One of the key findings triggered by the database is that
two areas amenable to policy interventions—maritime transport connectivity and
logistics performance—are very important determinants of bilateral trade costs,
with an effect comparable to that of geographical distance.
“Technological factors are responsible for a significant
share of the differences in trade costs around the world,” says Ravi Ratnayake,
Director of ESCAP’s Trade and Investment Division, which partnered with the
World Bank on the project. “From a policy perspective, reforms in areas such as
infrastructure, core trade-related services sectors, and private sector development
can thus have significant benefits for countries in terms of lowering trade
costs.”
The global database shows the pattern of trade costs across
countries and through time by offering a comparison of pairs of countries, and
an identification of those trade costs that are high. As such, the dataset can
be used to examine the policy factors and “natural” factors that contribute to
the levels of trade costs observed around the world. One telling trend: for
upper middle income countries, it is easier to trade with high income countries
than among themselves.
“Neighboring countries in regions like the Middle East and
North Africa often have higher trade costs with each other than with the more
distant Southern European markets,” says Jean François Arvis, a senior
economist at the World Bank’s International Trade Department and one of the
database’s principal architects. “This disparity serves to hold back ongoing
efforts at regional integration in such areas.”
In an increasingly globalized and networked world, trade
costs matter not only as a determinant of the pattern of bilateral trade and
investment, but also of the geographical distribution of production. Although
tariffs in many countries are now at historical lows, the evidence suggests
that trade costs remain high for developing countries struggling to gain a
lasting foothold in international supply chains.
Trade costs are therefore of great importance from a policy
perspective, since they are an important determinant of a country’s ability to
take part in regional and global production networks. The Trade Costs database
allows policymakers to highlight high trade costs at a bilateral level,
identify the key determinants of those high costs, and focus their efforts on
the reduction of those costs. Of course, experiences vary greatly from one
developing region to another. East Asia, for example, has experienced much
lower levels of trade costs than others, such as Sub-Saharan Africa.
A clear implication of the research is there is much for
developing countries to learn from each other in terms of the set of policies
that work effectively to reduce trade costs. This new dataset can be a powerful
tool for practitioners and policymakers to do so, especially in combination
with other methodologies, data sources, and expertise on the ground.