Infrastructure and international trade

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Infrastructure and international trade

• World Bank Group and the private sector, CMI 14
  June 2005
• Hildegunn Kyvik Nordås,
• SNF and University of Bergen

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Overview

• Why is infrastructure important?
• How does it affect trade?
• What are the policy implications?

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Why is infrastructure important?
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Infrastructure

• Improves the ability of companies to pay its
  workers
• Improves the ability to enter higher value added
  market segments

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Vertical specialization outsourcing

• Established practice in manufacturing relatively
  new phenomenon in services.
• Driven by falling transport and other trade
  costs
• Lead time is a crucial competitive factor
• Wal-Marts delivery time requirement is one week

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International production networks import content
of exports
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Vertical specialization

• Important for small countries
• Important for poor countries
• A way of getting access to foreign distribution
  networks and technology

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• High import content, Just in time

Good infrastructure is essential
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How does infrastructure affect bilateral trade?

• An extra day in transit has been estimated to
  cost the equivalent of 0.8 percentage point ad
  valorem tariff.
• Customs clearance takes on average 7-30 days in
  many African countries
• A 10 per cent increase in tariffs reduces
  bilateral trade by more than 10 percent on
  average
• A 10 percent improvement in port efficiency
  increases exports by about 6 per cent

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The most important determinants of vertical
specialization

• Size of local market
• Distance to major markets
• Port efficiency
• Control of corruption
• Telephone density

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Policy implications for Africa

• Improved port efficiency is essential
• How to reconcile with new safety regulation?
• Improved control of corruption important in its
  own right and for improving port efficiency (a
  high correlation between corruption and port
  efficiency)
• Trade facilitation (the only Singapore issue left
  in the WTO negotiations) can reduce time in
  transit in a cost efficient way
• A case for special economic zones and transport
  corridors?
• Infrastructure is expensive and resources are
  limited
• But creating enclaves isolated from the local
  economy does not generate much development
• A need to rethink local content requirements in
  preferential trade arrangements