‘The Impact of Trade Facilitation Mechanisms on Export Competitiveness’

1. ‘The Impact of Trade Facilitation Mechanisms on Export Competitiveness’ Malcolm D. Spence Stephen N. Karingi Regional Integration, Infrastructure and Trade Division Economic Commission for Africa

2. The Impact of Trade Facilitation Mechanisms on Export Competitiveness “The results suggest that both imports and exports for a country and for the world will increase with improvements in …trade facilitation measures.” (Wilson et al., 2005; abstract) “Competitiveness is a largely meaningless concept.” (Krugman, 1991; p.41) “Economists, in general, do not use the word competitiveness” (Krugman, 1996; p.24)

3. Export Competitiveness as Market Share “The most intuitive definition of competitiveness is a country’s share of world markets for its products. This makes competitiveness a zero-sum game, because one country’s gain comes at the expense of others.” (Porter et al., 2008; p.2)

4. Export Competitiveness as Market Share:Africa’s Share of World Merchandise Trade Source: UNECA and AUC (2011)

5. Export Competitiveness as Market Share: Constant Market Share Analysis Export growth ≡ World effect + Commodity composition effect + Market distribution effect + Competitiveness effect

6. Export Competitiveness as Market Share:Constant Market Share Analysis

7. Productivity and the Foundations of Competitiveness:The Twelve Pillars of the GCI Source: WEF (2010)

8. Productivity and the Foundations of Competitiveness:The Twelve Pillars of the GCI Source: WEF (2009)

9. Productivity and the Foundations of Competitiveness

10. Productivity and the Foundations of Competitiveness

11. (New) Export Competitiveness Hausmann, Hwang and Rodrik (2007) – “what you export matters”

12. (New) Export Competitiveness

13. (New) Export Competitiveness

14. Introducing Trade Facilitation World Bank Thematic Group on Export Competitiveness: • The incentive framework – resources must be allocated to firms that have the capacity to compete internationally in the long run, and the most productive firms. • Reducing trade related costs – this includes physical infrastructure and complementary services related to trade, as well as polices related to the supply of capable workers. • Overcoming market and government failures – a holistic approach to mitigate weak capacity through building institutional quality in areas such as export promotion, innovation, and transparency of government procedure.

15. Introducing Trade Facilitation World Bank Thematic Group on Export Competitiveness: • The incentive framework – resources must be allocated to firms that have the capacity to compete internationally in the long run, and the most productive firms. • Reducing trade related costs – this includes physical infrastructure and complementary services related to trade, as well as polices related to the supply of capable workers. • Overcoming market and government failures – a holistic approach to mitigate weak capacity through building institutional quality in areas such as export promotion, innovation, and transparency of government procedure.

16. Trade facilitation Reduced on the border costs Better business environment Improved infrastructure Improved institutions Export competitiveness Improved firm productivity Easier access to imports Easier access to foreign markets More FDI and other inputs to production Outcomes More exporting firms Intensive expansion Bigger firms More sophisticated exports FDI, technology and productivity spillovers Benefits Cheaper domestic goods Protection from shocks Export led growth Job creation Feedback effects to more trade facilitation Trade Facilitation and Export Competitiveness

17. Introducing Trade Facilitation • Transaction effect – arising from lower transaction costs • Production effect – arising from the redistribution of resources toward more productive activities • Exports tend to benefit more than imports • Extensive expansion outweighs intensive expansion

18. Trade Facilitation and Export Competitiveness • Regress TFP and EXPY on 4 indicators of trade facilitation from Portugal-Perez and Wilson(2010): • INF, physical infrastructure • ICT, information and communications technology • BORDER, border efficiency • BUS, business environment • Small sample size (21x4 and 17x4) inhibits panel stationary tests, and power of fixed/random effects specifications • Multicollinearity between trade facilitation indicators and control variables • White test confirms heteroskedasticity, justifying use of EGLS

19. Table 3 – Trade Facilitation and TFP: Model Estimates Trade Facilitation and TFP: Model Estimates

20. Table 3 – Trade Facilitation and TFP: Model Estimates Trade Facilitation and EXPY: Model Estimates

21. Conclusions and Recommendations • Trade Facilitation can bolster total factor productivity • Hard Infrastructure is the most significant • Pervasive transaction effect • Weaker impact on EXPY • Physical infrastructure still significant • Less prominent production effect • Openness and market size variables positively significant • Gains from regional integration

22. Thank you for your kind attention. Comments and suggestions to mspence@uneca.org and skaringi@uneca.org