Julien Gourdon

Evaluating Aid for Trade: A Survey of Recent Studies

The demand for accountability in aid-for-trade is increasing but monitoring has focused on case studies and impressionistic narratives. The paper reviews recent evidence from a wide range of studies, recognizing that a multiplicity of approaches is needed to learn what works and what does not. The review concludes that there is some support for the emphasis on reducing trade costs through investments in hard infrastructure (like ports and roads) and soft infrastructure (like customs). But failure to implement complementary reform -- especially the introduction of competition in transport services -- may erode the benefits of these investments. Direct support to exporters does seem to lead to diversification across products and destinations, but it is not yet clear that these benefits are durable. In general, it is difficult to rely on cross-country studies to direct aid-for-trade. More rigorous impact evaluation is an underutilized alternative, but situations of clinical interventions in trade are rare and adverse incentives (because of agency problems) and costs (because of the small size of project) are a hurdle in implementation.

Regional Integration and Natural Resources: who benefits? Evidence from MENA

This paper builds on theoretical predictions that show that gains from regional integration are unevenly distributed between resource rich and poor countries. It explores the effects of different integration schemes in the Middle East and North Africa. The results suggest that within the Pan Arab Free Trade Agreement, there is significant trade creation for resource poor countries associated with regional integration, and no evidence of trade diversion. In resource rich countries, however, there is evidence of pure trade diversion in both resource-rich/labor-abundant countries and resource-rich/labor-importing countries. This underscores the idea that regional integration can help to spread the benefits of unevenly distributed resource wealth among the regions economies.

Reforming Non-Tariff Measures

The empirical case for trade as an engine of growth has now been established on solid empirical grounds. There has been a protracted controversy in the literature on the econometrics of trade and growth. Nonetheless, most recent estimates suggest that a major episode of liberalization provides a permanent boost in growth on the order of 1 to 2 percent. Concomitantly, and largely on practical grounds, most low- and middle-income countries, with very few exceptions, have substantially lowered their trade barriers, eliminating the most egregious forms of trade protection (tariff peaks, quantitative restrictions, and other command-and-control instruments). Yet, by all accounts, trade costs remain high. Using an approach that consists of inverting the gravity equation and inferring trade costs from the relative size of external versus internal trade, Arvis and others (2013) and Novy (2013) show that trade costs have failed to fall as much for low-income countries as they have for others, reinforcing their economic ‘remoteness.’ Several multilateral initiatives have been set up to help low- and middle-income countries low-income ones, to integrate better in world trade. For instance, the Aid-for-Trade initiative was launched in 2005 to help low-income countries to cope with their Uruguay Round commitments, which were, in turn, expected to improve their ability to draw benefits from World Trade Organization (WTO) membership. More recently, the Trade Facilitation Agreement (TFA) signed in December 2013 in Bali and entered into force in February 2017, was designed to help low and middle-income countries to focus on reducing non-tariff barriers (NTBs) to trade such as border delays, cumbersome regulations, and so on. The TFA is expected to focus governments’ attention on the various aspects of trade facilitation, including some that go beyond the written mandate of the TFA. Some of those aspects are technical issues of border management, such as reducing delays, computerizing customs transactions, and streamlining verification and payment procedures. Some others are more genuinely economic, such as streamlining NTBs and improving regulatory design through cost-benefit analysis. This volume discusses some of the analytical methods that can be used to accompany this process. Chapter two discusses the broad economic rationale for improving the design of NTMs. Chapter three illustrates the main forms of quantifying NTMs and their effects, including inventory approaches, price-based approaches, and quantity-based approaches. It also proposes a new analytical and measurable concept of regulatory distance to help in guiding deep integration efforts at the regional level. Chapter four discusses the effects of NTMs on household expenditures, poverty, and firm competitiveness. Chapter five illustrates how analysis of NTMs can be used to inform policy advice. Chapter six concludes.

The Policy Case for Tackling Non-Tariff Measures

Chronicles efforts to reduce the high tariff and non-tariff barriers (NTBs) imposed by many low-income countries until the 1980s; confirms the link between trade liberalization and growth; and discusses the broad economic rationale for improving the design of non-tariff measures (NTMs). Though tariffs have been lowered progressively over the last 30 years, overall trade costs have remained high, in particular for low-income countries; NTMs often create conflicts of interest and employ increasing complexity. Regional efforts to impose NTB reduction, harmonization, and mutual recognition agendas have come from the Association of Southeast Asian Nations (ASEAN) as well as from East Africa. In an alternative approach each country views NTM streamlining as part of a broader but largely domestic regulatory improvement agenda. Cambodia has put in place an NTM committee, mandating transparency, evaluation, and improvement of procedures; Mexico’s experience stresses four key strengths of political anchor, international support, institutional setup, and engagement of national administration.