Assessing the impact of trade facilitation on SADC’s intra-trade potential African Economic Conference (AEC) Johannesburg, South Africa 1 Dr. Albert Makochekanwa Lecturer Department of Economics University of Zimbabwe Harare, Zimbabwe Email:[email protected]28th – 30th Oct 2013 Dr. A. Makochekannwa [email protected]
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Assessing the impact of trade facilitation in SADC … · Assessing the impact of trade facilitation on ... export trade potential (P) as simulated/predicted by the gravity model
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A 2000 study by Australian Department of Foreign Affairs and Trade and ChineseMinistry of Foreign Trade and Economic Cooperation found that moving toelectronic documentation for trade would yield a cost savings of some “1.5 to 15percent of the landed cost of an imported item.”
Freund and Weinhold (2000) employed a gravity model to estimate the role of e-commerce in promoting bilateral trade. The study found that a 10 percent increasein the relative number of web hosts in one country would have increased by onepercent trade flows in 1998 and 1999.
The analysis which was conducted by Fink, Mattoo and Neagu (mimeo) applied agravity model to estimate the effect of the communication costs on bilateral trade.They found that a 10 percent decrease in the bilateral calling price was associatedwith an 8 percent increase in bilateral trade.
Otsuki, Wilson and Sewadeh (2001a, 2001b) employed a gravity model to the caseof food safety standards, and found that African export of cereals, nuts and driedfruits were likely to fall by 4.3% on cereals, and 11% on nuts and dried fruitsfollowing a 10% tighter of EU standard on aflatoxin contamination levels of theseproducts.
The study by Simwaka (2011) investigated what the SADC countries could gain byway of increases in intra-regional trade if all trade barriers were to be removed. Thepaper found that observed intra-regional trade was lower than its potential, thussuggesting existence of trade potential in the sub-region.
The paper by Cassim (2001) employed a cross section econometric gravity toinvestigate the potential for trade among SADC countries. The research foundexistence of unrealized potential trade mostly between South African andZimbabwean.
The Chauvin et al. (2002) study investigated the benefits expected from the SADCFTA given the economic structure disparities existing among its participatingmembers. The research found that trade was nearly exhausted with limited space forfurther trade potential increase.
Elbadawi (1997) which was done before SADC free trade area (FTA) became intoexistence found that the region had no significant effect on trade among itsmembers, although the performance of the bloc slightly improved when controllingfor exchange rate policy effects.
Methodology – Gravity model
Where I and J = exporter and importer respectively
Expij= value of exports from country I to J
tariffij = denotes applied tariff rate in the percent
PEI, CEI,and EBI = importing country J’s indicators of port efficiency,
customs environment, and e-business usage.
GDP = gross domestic product
DISTIJ = distance between economic centres of I and J
LANG language dummies include English, French and Portuguese.
Discussion of Gravity Results Considering the traditional gravity trade model variables, a 1% increase in
gross domestic product (GDP)of both the exporter and importer countrieswill increase intra-SADC export trade by 1.5% and 1.19%, respectively.This positive relationship is, as pointed earlier, according to theoreticalexpectations.
The negative coefficient on distance is according to theoretical expectation,whereby an increase in distance will increase such things as transaction andtransportation costs, among other expenses, thus resulting in a reduction inexports of meat and meat products. According to Table 4, a 1% increase indistance reduces intra-SADC export trade by 3.3%.
The coefficient of common border is positive and statistically significant at1% level of significance. This, as said before, this is according totheoretical expectations which assumes that countries which shares acommon border are more likely to trade with each other than countrieswhich do not share a common border.
Conclusion This study, unlike most previous studies which used costs of transport as a
measure of trade facilitation in the gravity model, sets itself apart by thefact that it includes a variety of indicators of trade facilitation.
The set of indicators includes country-specific trade facilitation indicatorsfor port efficiency, customs environment and e-commerce use by business.
Findings 1: The research found that improvements in port efficiency andincreased use of e-business are some of the factors which boost intra-SADC trade in exports.
Thus, SADC policy makers should implement strategies which improvesport efficiency and also encourage use of e-business.
Findings 2: Overall, the potential trade simulations shows mixed results,with some reporting countries seems to have exhausted their tradepotentials, while other still indicated as having untapped trade potentialswith their respective regional trading partners.