Regional Infrastructure for Trade Facilitation – Impact on Growth and Poverty Reduction
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 between different types such as physical and regulatory infrastructure, and providing more evidence of the complementarities between both types to ensure the benefits of reduced 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 reason is 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; (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 borders, reducing spatial inequalities within African countries. It also supports the informal sector at the border, in particular informal traders. But to increase the benefits, cross-border infrastructure should take into account their specific characteristics. There are also 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.
Economic actors will only benefit from new hard infrastructure 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. 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.
The research suggests RITF is good for growth and productivity, but there are several ways in which policy can enhance these effects:
- Policy should focus not only on the quality of regional hard infrastructure, such as roads and ports, but also on other factors such as soft infrastructure, to increase transparency and the efficiency of trade-related services for all firms. In particular, it should focus on innovative regulations to address coordination failure in value chains.
- Policy should also remove barriers to efficiency of trade logistics services, in particular for transit, such as licensing and service restrictions, restrictions on the employment of labour, limitations on access to infrastructure facilities, cabotage restrictions, cargo reservation schemes and third country rules, or ownership and investment regulations.
Policy can also improve the impact of RITF for the poorest and reduce the risks they may face:
- Policy needs to help sustain the reduction in spatial inequalities from RITF by supplying complementary infrastructure such as rural feeder roads, as well as health and education services. This could foster the development of new hubs of economic activity.
- It is important to design temporary programmes to support those affected negatively by one-stop border posts and help them change to other types of activities.
- Better integration into international production networks is welcome, but complementary policy is needed to give smaller firms the opportunity to participate, directly or indirectly.
Jouanjean, M-A.; te Velde, D.W.; Balchin, N.; Calabrese, L.; Lemma, A. Regional Infrastructure for Trade Facilitation &#8211; Impact on Growth and Poverty Reduction. ODI, London, UK (2016) 119 pp.