TRADE FACILITATION, TRANSPORT COSTS AND MARITIME IMPORTS IN LATIN AMERICA

INMACULADA MARTÍNEZ ZARZOSOUniversitat Jaume I and Georg-August Universitaet

LAURA MARQUEZ-RAMOSUniversitat Jaume I

GORDON WILMSMEIERUN-ECLAC

Arnold Shain Seminar 26 June 2013, Antwerp

The context

Latin American containerised trade

Continued economic expansion and trade

Challenges in trade facilitation Excessive time delays Bureaucratic requirements for varying goods traded Role of institutional trade barriers

Research question

What are repercussions from maritime transport infrastructure development and trade facilitation in the structure of maritime transport costs, and hence, on bilateral trade?

Trade facilitation

WTO definition: “the simplification and harmonization of international trade procedures””

Wilson, Mann and Otsuki (2003, 2005) define four measures Port efficiency Customs environment Regulatory environment E-business usage

Modelling approaches

Gravity model of trade Mann and Otsuki (2003, 2005) for the Asia-Pacific region Soloaga, Wilson and Mejía (2006) on Mexican competitiveness Djankov, Freund and Pham (2006) used the World Bank’s

Doing Business Database focusing only on effects of time delays in the exporting country

Nordas, Pinali and Grosso (2006) discuss how time delays affect the probability to export and the export volumes for imports from Japan, Australia and the United Kingdom.

Persson (2007) studied effect of time delays and transaction costs on trade flows using a sample selection approach and focussing on the specific effects for each of the six groups of ACP countries negotiating Economic Partnership agreements with the EU.

Modelling approaches

Computable general equilibrium model to estimate the effect of a composite index of trade facilitation on trade flows UNCTAD, 2001 OECD, 2003 Dennis, 2006 Decreux and Fontagne, 2006

Trade facilitation and tariffs

Márquez-Ramos, Martínez-Zarzoso and Suárez-Burguet (2011) compare different types of trade barriers in both developed and developing countries,

Trade facilitation variables and policy trade barriers, as tariff peaks and tariff escalation remain important issues for developing countries, and a “tariff bias” exists against developing countries (Márquez-Ramos et al, 2011).

They show that trade facilitation variables are, in relative terms, more important than tariffs.

increasing trade facilitation would lead to an increase in world trade, although this increase would not be the same in all countries as, by running simulations

The present paper mainly differs from existing trade-facilitation literature in that it focus on imports and analyses the effect of trade

facilitation on both transport costs and bilateral trade with Latin America.

Data

Data for disaggregated maritime exports from 181 countries to 9 Latin American countries

Time period 2000-2006

LA countries: Argentina, Bolivia, Brazil, Chile, Colombia, Ecuador, Peru, Paraguay and Uruguay.

Each observation corresponds to a given product, k (SITC code 5 digit).

Trade Facilitation variablesTrading accross borders

N of Documents needed to Export

Days needed to Export

N of Documents needed to Import

Days needed to Export

Country 2006Change 2006-13 2006

Change 2006-13 2006

Change 2006-13 2006

Change 2006-13

Argentina 7 0 16 -3 7 0 20 -4Bolivia 8 0 24 -5 7 0 36 -13Brazil 7 0 18 -5 8 0 24 -5Chile 6 0 17 -2 6 0 16 -3Colombia 5 0 34 -10 6 0 48 -7Ecuador 9 -1 22 -2 8 -1 44 -15Paraguay 8 0 35 -2 10 0 33 0Peru 6 0 22 -10 8 0 29 -12Uruguay 7 0 23 -7 8 0 23 -1Av LA 2006 7 -0.11 23.44 -5.11 7.56 -0.11 30.33 -6.67Av OECD 2006 5.42 16.70 6.62 19.10Av OECD 2013 5.28 0 13.70 -3 6.16 0 14.58 -4.52

Data: Transport cost model

The dependent variable in the transport cost model is the ad-valorem freight rate between the country of origin and the country of destination.

Product value (USD/Kg): Volume exported:

Total weight in tonnes of the trade flows shipped to each specific country of destination.

Port container throughput: Iportv Distance: Dist Number of days (documents) to import and export: ET

from the World Bank’s Doing Business (2006) database

Data: Gravity model

Dependent variable in the gravity model is imports between the country of origin and the country of destination. amount in current dollars that importers have to pay for the products

at free on board (fob) prices.

Gross domestic product (GDP) of the importer and exporter countries

Gross domestic product per capita in both countries Transport costs Distance. Dummies:

Common language Common border

Model specification

ln indicate natural logarithms,

uvijkt denotes the value per weight ratio (USD/ton) of product k in year t,

qijkt is the volume of transaction between countries i (exporter) and j (importer) of product k in year t,

iportvjt and eportvit denote total port throughput or maritime transport infrastructure in the importing and exporting countries in year t,

distij denotes the maritime distance between main ports in country i and j,

Tjt and Tit the average number of days (documents) needed in the importer and the exporter country to trade a product.

δkt=sectoral*time dummies at one digit SITC classification, SITC2-SITC8

ijktijitjtij

itjtijktijktktijkt

TTdist

eportviportvquvTC

lnlnln

lnlnlnlnln

765

4321

where:

Linking trade costs to a simple gravity equation

where lnMijkt is the log of the value of imports of product k into country j from country i in period t.

GDPjt is the value of gross domestic product for importer j in period t and GDPit that of exporter i in the same period, distij is the distance between each pair of trading partners and T denote trade facilitation variables.

εijkt is a composite error term of unobservable effects.

A similar set of country-pair, time and sectoral dummies as in equation (1) is added.

ijktijitjtijijij

ijktitjtktijkt

TTlangborderdist

tcegdpigdpM

lnlnln

ln)ln(ln

76543

21

Methodology

Estimation of a transport costs model and a gravity equation of trade

Using panel data techniques that allow controlling for country, sectoral and time unobserved heterogeneity.

Main results transport costs

Lntc (1) (2) (3) b/se b/se b/se

lnuv -.753** -.753** -.753** (.0235) (.0235) (.0235)

lnq -.108** -.108** -.108**

(.00517) (.00517)(.00516)

i_dayimp .0272* (.00361)

e_dayexp .011** (.00067)

i_numdocimp -.0568** (.0022)

e_numdocexp .0371* (.00316)

lnicostimp .128 (.0551)

lnecostexp .16** (.00613)

R-squared 0.678 0.678 0.679 N 819826 819826 819826

Decrease in TC: Reduc to 2013i_dayimp -14% with 5 days lesse_dayexp -8% with 7 days less

Reduc to OECDi_dayimp -27% with 10 days lesse_dayexp -16% with 15 days less

Main resultsbilateral aggregated trade data

Ln Imports (4)b/se

ltgdp -.154***(.0348)

lntc -.751***(.00089)

lnidayimp -2.3***(.671)

lnedayexp -.407***(.0161)

R-squared 0.855N 794909Dyadic FE yesTime&Sector FE yes

i_code fob tcav i_dayimp e_dayexpARG 89703.02 0.06 20.00 12.46BOL 71129.34 0.59BRA 116770.7 0.14 24.00 11.55CHL 187323.8 0.36 21.00 18.92COL 102283.7 0.12 40.83 17.80ECU 75085.48 0.45 44.00 17.73PER 221833.5 0.21 31.00 18.13PRY 59965.95 1.11 33.00 13.17URY 49969.27 0.09 23.00 13.06Total 106740.4 0.17 23.96 12.10

Conclusions

Trade facilitation (time and documents required to trade) is considered as determinants of transport costs

Recent institutional trade conflicts among Latin American partners point in evidence the need of empirical research to provide light on the role of institutional trade barriers, or trade facilitation procedures, when trading with Latin America

Conclusions (cont’d)

Results show that time delays are a more important trade barrier to trade with Latin American countries than bureaucratic procedures

Natural trade barriers (transport costs) are of higher importance than institutional trade barriers established by Latin American countries (trade facilitation procedures) when trading with this developing region

Further research needed with disaggregated data for a better understanding of the role of trade facilitation procedures

QUESTIONS?

INMACULADA MARTÍNEZ ZARZOSOUniversitat Jaume I and Georg-August Universitaet

LAURA MARQUEZ-RAMOSUniversitat Jaume I

GORDON WILMSMEIERUN-ECLAC

Transport costs disaggregate versus aggregated results(1) (2) (3) (4)

Product value -0.693*** -0.693*** -1.419*** -1.433***-32.093 -32.065 -21.548 -22.34

Volume imported -0.110*** -0.110*** -0.785*** -0.802***-9.437 -9.433 -44.201 -46.139

Importer’s port container throughput 0.516 0.3271.174 0.734

Exporter’s port container throughput -0.324 -0.419-1.188 -1.577

Distance 0.156 0.141.512 1.392

Days to import 0.012*** 0.026**4.002 2.43

Days to export 0.011* 0.010**1.586 2.276

Documents to import 0.043 -0.0831.034 -1.48

Documents to export 0.039 0.0141.57 0.981

Constant Term -3.92 0.834 3.216*** 5.084***-0.503 0.112 2.907 5.133

R-squared 0.359 0.317 0.872 0.869Number of observations 1077504 1077504 745 745RMSE 0.751 0.750 0.587 0.589

Gravity model for aggregate exports

(5) (6)Income 0.359*** 0.321***

6.387 4.827Distance -0.075 -0.063

-0.445 -0.365Transport costs -0.677*** -0.699***

-12.823 -13.041Border 1.561*** 1.412***

3.822 3.538Language 0.655** 0.754**

2.119 2.304Days to import 0.036***

2.709Days to export -0.030***

-3.617Documents to import -0.016

-0.136Documents to export -0.068***

-3.242R-squared 0.808 0.804Number of observations 727 727RMSE 0.633 0.641