Trade Facilitation - Measurement Difficulties in the Computable General Equilibrium Model: A Review

Abstract

This paper reviews research on quantitative assessments of the economic impacts of Trade Facilitation (TF), based on Computable General Equilibrium (CGE) models, in the context of techniques adopted to estimate Trade Transaction Costs (TTCs). Insufficient TF poses a barrier to trade and is a major concern of the second generation trade policy agenda. Thus, recent CGE applications such as GTAP are generally associated with estimations of the benefits of eliminating TTCs by TF improvements, in that impacts of these trade barriers surpass those of tariff barriers, particularly in developing countries. However, accessing data relating to TTCs are limited, as no standard database has yet been developed. Thus, outcomes of existing CGE models vary in terms of the approach selected for TTC estimations. This paper outlines the methodological approaches adopted in recent research for estimating TTCs to incorporate into TF-related CGE models. Our literature survey revealed that two methods have been employed incorporating TTCs into CGE models and both approaches produced variances in estimating shortfalls. This review identifies the importance of developing a standard up to date trade costs database, including investment spending of TF implementations, which can be incorporated into GTAP aggregation to model TF variables, since cost benefit assessment is integral to determining the net global benefits of TF. Future TF related research should prioritise this process, since this is crucial for assessing the accurate economic impacts of eliminating TTC especially in developing countries.