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Trade Facilitation and Trade Facilitation and Economic Growth: The Economic Growth: The

New Agenda New Agenda

John S. Wilson, Lead EconomistJohn S. Wilson, Lead EconomistThe World BankThe World Bank

Australian National UniversityAustralian National University

Canberra, AustraliaCanberra, AustraliaAugust 9, 2006August 9, 2006

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OverviewOverview Trade Facilitation in ContextTrade Facilitation in Context

• Economic Growth and Driving ForcesEconomic Growth and Driving Forces

Why Barriers and Trade Costs MatterWhy Barriers and Trade Costs Matter

Policy Tools and Action AheadPolicy Tools and Action Ahead• WTO, APEC, and Development AgendaWTO, APEC, and Development Agenda

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Growth – across regionsGrowth – across regions(World Bank – Global Economic Prospects Report)(World Bank – Global Economic Prospects Report)

•Real GDP growth, 2003-2006Real GDP growth, 2003-2006

8.1 7.9

6.1

5.2

3.6

2.1

8.3

6.87.2

4.94.5

5.8

7.8

6.9

5.34.8 4.6 4.54.6

6.4

5.2 5.4

4.7

3.9

0

1

2

3

4

5

6

7

8

9

EAP SA ECA MENA SSA LAC

Per

cent

2003 2004 2005e 2006f

44

-1

0

1

2

3

4

5

6

7

High-incomecountries

East Asiaand Pacific

Europe andCentral Asia

LatinAmerica and

theCaribbean

Middle Eastand North

Africa

South Asia Sub-SaharanAfrica

Per

cent

Labor Capital Productivity

Decomposition of GDP growth 2005-2015Decomposition of GDP growth 2005-2015 (Average % per annum)

Productivity is accelerating……..Productivity is accelerating……..

55

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

1997 2000 2003 2006 2009 2012 2015

Other developing

China

Other high-income

United States

Merchandise exports ($billion)

World trade as a driving force……..World trade as a driving force……..

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So Why Focus on Trade Facilitation?So Why Focus on Trade Facilitation?

Trade Facilitation Trade

GDP growthHuman Development

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Trade Costs – NTB’s are a ThreatTrade Costs – NTB’s are a Threat

Slow global growth…….Slow global growth…….

Block business productivity, regional Block business productivity, regional integration, and efficient networksintegration, and efficient networks

Help to ensure continued poverty, Help to ensure continued poverty, monopoly power, corruption, and monopoly power, corruption, and world insecurityworld insecurity

88

Simple Statistic Simple Statistic Time Required for Exports (by Region)Time Required for Exports (by Region)

Required Time for Exports (Days)

166 6 10

24 175

116

93

66

49 44 4329

0

20

40

60

80

100

120

140

Africa ECA EAP MENA SA LAC DevelopedCountries

Min.

Max.

“Trading on Time” (2006)

99

Costs and Benefits of Reform?Costs and Benefits of Reform?

Results for trade and GDP gains:Results for trade and GDP gains:• APEC: 1% (ICs) 2% (LDCs) shock to APEC: 1% (ICs) 2% (LDCs) shock to

import prices yields 3.3% increase in import prices yields 3.3% increase in exports exports

• UNCTAD: 1% cost reduction yields $3.3 UNCTAD: 1% cost reduction yields $3.3 billion in Asia. billion in Asia.

• One day delay before shipping reduces One day delay before shipping reduces trade by 1% (country distancing from trade by 1% (country distancing from trade partners by 85 km) Freund, et. al, trade partners by 85 km) Freund, et. al, 2006.2006.

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Wilson, Mann, Otsuki (2004)Wilson, Mann, Otsuki (2004)

Building on APEC Trade Ministers Report Building on APEC Trade Ministers Report with Canada in 2002with Canada in 2002

Evaluate reform in the following:Evaluate reform in the following:1. Port Logistics (air and sea)1. Port Logistics (air and sea)

2. Customs Environment2. Customs Environment

3. Regulatory Environment3. Regulatory Environment

4. E-business usage (proxy for services infrastructures)4. E-business usage (proxy for services infrastructures)

Creating Country-Specific IndicatorsCreating Country-Specific Indicators• Consistency-- Country-specific information on a consistent Consistency-- Country-specific information on a consistent

basis from multiple sources for each indicator basis from multiple sources for each indicator

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Raising Capacity Half-way to Raising Capacity Half-way to Global AverageGlobal Average

$377 billion trade gain$377 billion trade gain

Sources of Trade Expansion Information Technology

41%

Regulatory Harmnization

10%

Customs Environment

9%

Port Efficiency

28%

Source: Wilson, Mann and Otsuki (2004)

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What About Welfare Gains and What About Welfare Gains and Aid Effectiveness?Aid Effectiveness?

How effective is trade-related lending How effective is trade-related lending (infrastructure, trade development, and trade (infrastructure, trade development, and trade policy) in lowering trade costs?policy) in lowering trade costs?

APEC members receive on average (1995-2004) APEC members receive on average (1995-2004) TF aid totaling:TF aid totaling:

• $5.3bn including China (35% world total)$5.3bn including China (35% world total)

APEC members contributed on average (1995-APEC members contributed on average (1995-2004) TF aid totaling $8.6bn (56% world total)2004) TF aid totaling $8.6bn (56% world total)

OECD-DAC dataOECD-DAC data

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Ivanic, Mann & Wilson Ivanic, Mann & Wilson (forthcoming)(forthcoming)

Preliminary resultsPreliminary results::

• Global welfare increase of $25 billion Global welfare increase of $25 billion with targeted “aid for trade facilitation.”with targeted “aid for trade facilitation.”

• Aid cuts trade costs overall by 0.3% -- Aid cuts trade costs overall by 0.3% -- but some regions much more.but some regions much more.

• More ahead….regional distribution of More ahead….regional distribution of gains, which type of aid more effective?gains, which type of aid more effective?

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Conclusions…….Conclusions…….

Evidence indicates trade gains are driven Evidence indicates trade gains are driven by raising capacity and reform in several by raising capacity and reform in several areas……but country priorities differ.areas……but country priorities differ.

Collective action to raise lower barriers can Collective action to raise lower barriers can increase trade……but domestic reform increase trade……but domestic reform critical.critical.

Concrete analysis needed to clarify Concrete analysis needed to clarify priorities for action ahead.priorities for action ahead.

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Trade Policy AgendaTrade Policy Agenda

Doha Question mark Doha Question mark WTO Agreement a good small stepWTO Agreement a good small step Progress on a plurilateral basis?Progress on a plurilateral basis?

Wither Regionalism -- APEC?Wither Regionalism -- APEC? Good tool for reformGood tool for reform Busan Business Agenda (2005) --Busan Business Agenda (2005) -- Further 5 Further 5

percent cut in trade costs by 2010?percent cut in trade costs by 2010? Need clarity on concrete and achievable Need clarity on concrete and achievable

agenda.agenda.

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Development AgendaDevelopment Agenda

This is a most important agendaThis is a most important agenda

Aid Effectiveness – what works and Aid Effectiveness – what works and why?why?• Targeted or comprehensive frameworkTargeted or comprehensive framework• Soft or hard infrastructureSoft or hard infrastructure

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Thank YouThank You

John S. WilsonJohn S. Wilson

Lead EconomistLead Economist

The World BankThe World Bank

jswilson@worldbank.orgjswilson@worldbank.orghttp://econ.worldbank.org/projects/trade_costs