Trade Impact of Reducing Time and Costs at Borders in the Central Asia Regional Economic Cooperation Region

ABSTRACT

Trade facilitation, by reducing trade costs and raising the efficiency of moving goods across borders, is integral to international trade. Using novel data on bilateral time and cost measures for trade facilitation in the Central Asia Regional Economic Cooperation (CAREC) Program, this study estimates the trade impact of reducing time and costs at border crossing points within CAREC. The gravity model estimations show that reducing time by 10% at the inbound border increases trade among CAREC countries by 1 − 2%. Trade impact of reduction in time and costs at the inbound border is estimated to be higher than that at the outbound border. We also find that the trade impact of reducing time at the inbound border increases with the severity of time bottleneck and the trade impact is more effective in recent year since 2013.

KEYWORDS:

• Trade costs
• Central Asia Regional Economic Cooperation
• trade facilitation indicator
• gravity model

JEL:

• C23
• F14
• N75
• R41

Disclosure statement

No potential conflict of interest was reported by the author(s).

Notes

1. The differences in trade costs were computed using data from the United Nations Economic and Social Commission for Asia and the Pacific (UNESCAP) (2018) report. The data are in terms of tariff-equivalent trade costs or ad valorem trade costs, which are expressed as percent relative costs of trading outside the borders (international trading) to trading within the borders (domestic trading).

2. The ARCII developed by Huh and Park (2018), and Park and Claveria (2018) measures regional integration on a normalized scale of 0 to 1 in six dimensions: (i) trade and investment, (ii) money and finance, (iii) regional value chains, (iv) infrastructure and connectivity, (v) movement of people, and (vi) institutional and social integration.

3. The low intra-CAREC trade can be explained by the followings: (i) CAREC countries have similar production structures, limiting the potential for intraregional trade, except in products such as hydrocarbons, cotton, and aluminum (Jha 2015); (ii) low export diversification and high concentration on the same set of commodities; (iii) the geographical concentration of exports is limited to those with close historical and cultural links; and (iv) the geography of being landlocked causes high intraregional trade costs.

4. Various stakeholders are involved from the data collection stage to data reporting. For data collection, qualified truck drivers who transport shipments within and outside the CAREC region are required to fill in forms. A CPMM coordinator – the focal point of ADB and drivers – collects the forms every month from drivers. The data are standardized to address different attributes of the corridors (road development, length, cross-border protocols, etc.) and facilitate comparison.

5. In mode of transport for trade, road transportation accounts for 70%, rail for 26%, and multimodal for 4% in 2016 (Central Asia Regional Economic Cooperation (CAREC) 2018).

6. The same approach is also applied to the cost measure.

7. Measures on infrastructure include improvement of facilities such as ports, roads, and rails. It also includes opening new borders to further facilitate trade with existing and/or new countries. Cross border-cooperation includes implementation of a unified customs processing system with neighboring and/or partner countries. Customs administration includes measures such as streamlining internal customers procedures, creating customs clearance zones, and reducing unnecessary or redundant documentations. Lastly, electronic customs systems include implementation of national single window and digitized applications.