Executive Summary: Regional Infrastructure for Trade Facilitation – Impact on Growth and Poverty Reduction

Abstract

Policymakers’ expectation that regional integration for trade facilitation (RITF) will help growth and poverty reduction is well founded in theory, but has not been matched by clear evidence from the evaluation and research communities. This project contributes to the body of research inspiring better evaluation and policies related to RITF. It unpacks infrastructure, distinguishing among different types such as physical and regulatory infrastructure. In particular, it provides more evidence of the complementarities between both types of infrastructure to ensure the benefits of the reduction in trade costs pass through to poor producers and consumers.

The report provides evidence on the impact of regional infrastructure and associated trade cost reduction on the behaviour, risks and opportunities of economic actors (households, firms) through direct and indirect routes. It does this by creating and using new infrastructure measures; undertaking original surveys and new regressions; and developing and testing a new theory of change.

It highlights the relevance of focusing on the regional dimension: the traditional reasons are to tackle geographical constraints by bringing together many small economies and landlocked countries. But other reasons identified include the fact that international production networks are often centred on regions. Also, regionally traded goods and their related activities are more employment-intensive than goods traded further away. However, addressing infrastructure at the regional level is not without challenges. There are vested interests and other political economy considerations involved, such as: (i) appropriation of benefits versus costs of investing in hard infrastructure regionally; (ii) appropriation of benefits by intermediaries and competition in logistics services; and (iii) the challenge of addressing non-tariff measures.

Investment in RITF is shown to enhance economic activity around the border, thereby reducing spatial inequalities within African countries. It also supports the activity of the informal sector at the border, in particular informal traders. But to increase the benefits, the design of cross-border infrastructure should take into account their specific characteristics. There are, however, potentially negative effects on the livelihoods of the most vulnerable, for whom specific initiatives can support adaptation to the new economic environment. RITF also facilitates integration into modern value chains and international production networks. Finally, RITF has positive impacts on the productivity of African firms.

The pass-through of the effect of new hard infrastructure to economic actors occurs only when complementary regulations allow for efficient trade logistic services. In particular, innovative regulations and infrastructure should address coordination failures in modern value chains and tackle obstacles such as localisation barriers to reduce competition in the logistics sector. Taken together, the evidence suggests most of the impacts on growth and poverty reduction are indirect and require an understanding of constraints to connectivity throughout value chains. Hence, policymakers should take greater care of accounting for these in policy decisions and evaluations of RITF.

Citation

Jouanjean, M-A.; te Velde, D.W.; Balchin, N.; Calabrese, L.; Lemma, A. Executive Summary: Regional Infrastructure for Trade Facilitation – Impact on Growth and Poverty Reduction. ODI, London, UK (2016) 7 pp.

Executive Summary: Regional Infrastructure for Trade Facilitation – Impact on Growth and Poverty Reduction

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