Impacts of Trade Facilitation on South Asian Economies

Abstract

South Asia's trade growth potential has not yet been realized, mainly attributable to the lack of market integration between countries as a result of excessive trade costs and delays which are one of the major determinants of global trade participation. Poor Trade Facilitation (TF) increases trade costs and delays, which prevent connectivity between countries and impair regional trade growth. Poor TF impacts negatively on trade volumes of both exports and imports and increases unemployment by restricting the development of a complete supply chain.<br/>This thesis provides an application of Global Trade Analysis Project (GTAP) model to assess the economy-wide impacts of TF in South Asia, together with a comprehensive evaluation of the World Trade Organisation (WTO) Trade Facilitation Agreement (TFA), in relation to the South Asian region, based on the "iceberg" approach. TF is measured as the changes in border transaction efficiency due to reductions in import and export delays. The Ad Valorem Equivalents (AVEs) of time in trade database, a three-dimensional database comprising per day AVEs of time to trade for each commodity in each country, is used as a supplement to the main GTAP database. This method has not previously been used to quantify the economy-wide impacts of trade delays in South Asia.<br/>Special attention was devoted to determining the impact of timeliness at separate stages in the process of South Asian border transactions, in order to identify the stages that take longer and, consequently, affect trade more adversely. Additionally, the impacts of trade delay reductions and further tariff removals were assessed to compare TF and trade liberalization policies. Emphasis was placed on determining the relationship between TF reforms and outcomes, measured by elasticities, which is an original contribution to the literature in terms of the use of updated TF indicators and time to trade data.<br/>The overall results of this thesis revealed that a facilitated trading system is paramount to expanding trade in South Asia and the successful implementation of the TFA offers the region positive economic gains. The quantitative estimates of this study clarify that a developing country's own TF reforms translate into greater economic gains than those of the export partners. Clearly, the sooner South Asian countries prioritize import time-reduction policies to promote import border transaction efficiency, the better for the region. Policies that accelerate the border clearance process of Agricultural sector imports and intermediate inputs required by the Manufacturing sector also warrant South Asian national TF priority. The costs-benefits analysis of the Agreement, using the novel method incorporated into the GTAP model, reveals that the expenses incurred in introducing TF reforms do not significantly affect the economy in the case of the majority of countries. The results of this thesis provide decision-makers with options for improving TF while providing a platform for further investigation of the impacts of TF on developing economies, utilizing a modified time and TF reform costs database, together with a restructured GTAP model as a data and modelling framework.