A new database developed jointly by the United Nations Economic and Social Commission for Asia and the Pacific (ESCAP) and the World Bank has revealed that trade costs fall disproportionately on developing countries.
This is despite the fact that the international economy has integrated considerably in recent decades.
Disclosing this in a statement issued yesterday, the World Bank said the study noted that “although developing countries were 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 bank explained that 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.”
Ravi Ratnayake, Director of ESCAP’s Trade and Investment Division, which partnered with the World Bank on the project, said, “Technological factors are responsible for a significant share of the differences in trade costs around the world. 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 data set 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.
