Transcript potential demand? - World Trade Organization

Aid for Trade:
Matching Demand with Supply
Richard Newfarmer
World Bank
Geneva, Sept 15 2008
WTO Experts Meeting
This presentation is based on Elisa Gamberoni and Richard Newfarmer
“Aid for Trade: Matching Potential Demand with Supply” World Bank,
Sept 15, 2008
Key questions:
Which countries might have a potential demand for aid for trade,
either because of poor trade performance or because of
capacity constraints that hamper trade?
Is the supply of aid for trade going to countries that have a
potential demand for it?
Which countries are receiving below average aid for trade –
relative to their potential demand?
Corollary: Which indicators seem most useful for monitoring
aid for trade because of their predictive effects on trade
performance?
Google map to our logic….
Which countries have greatest need…potential demand?
Trade performance
5 Indicators
Capacity : Infrastructure, Institutions, incentives
Which indicators predict trade level?
5 Indicators
Measuring potential demand -- rankings by quintile
Indicator 1 2 3 4 5 6 7 8 9 10 Total
Country (highest) 1 1 1 1 1 1 1 1 1 1 = 10
:
Country (lowest) 5 5 5 5 5 5 5 5 5 5 = 50
Does supply of aid go to countries with the higest demand?
Aid for Trade / GDP
demand
Income p.c., aid effectiveness
Which countries have less aid for trade than they might demand?
Caveats…
Paper does not analyze why a country might receive less aid for
trade
– It might not need it
– It might have higher priorities
– It might not use it well
The effort here is not to provide answers for individual countries
-- but to provide the big picture and to provoke questions at the
national level on competitiveness and aid for trade stategy
Potential demand arises from poor trade performance and
weak trade capacity …
Trade performance – Several ways to measure..
1. Growth rate of exports of goods and services
Trade performance varies…but 29 low income countries figure in the
bottom two quintiles
Bosnia
Zambia
Rwanda
Vietnam
Mozambique
Cambodia
Lao PDR
Guinea-Bissau
Cape Verde
Myanmar
Burundi
Azerbaijan
Grenada
Ethiopia
Armenia
Lesotho
India
Bhutan
Bangladesh
Mali
Georgia
Haiti
Nicaragua
Uganda
Angola
Congo, DR.
Mauritania
Ghana
Moldova
Burkina Faso
Bolivia
Nepal
Pakistan
Tanzania
Côte d'Ivoire
Sri Lanka
Tajikistan
Congo, Rep.
Gambia, The
Sierra Leone
Niger
Cameroon
Madagascar
Honduras
Uzbekistan
Kenya
Nigeria
St. Lucia
Samoa
Kyrgyz Republic
C. African.Republic
Djibouti
Eritrea
Benin
Zimbabwe
Senegal
Yemen, Rep.
Guinea
Guyana
Malawi
-15
1st quintile
2nd quintile
3rd quintile
4th quintile
5th quintile
-10
-5
0
5
10
15
Source: Authors calculation. World Bank,WTI Note: Quintile scale are from the entire sample of low and
middle income countries
Potential demand arises from poor trade performance and
weak trade capacity …
Trade performance – Several ways to measure..
1. Growth rate of exports of goods and services
2. Change in global market share
Despite export growth, about half of LICs lost market share
Low income countries: Change in market share, 1996-2006
Ind ia
V iet N am
N ig eria
A ng o la
A z erb aijan
Eq uat o rial Guinea
Sud an
C amb o d ia
B ang lad esh
C had
Y emen
M yanmar
Z amb ia
M o z amb iq ue
Geo rg ia
C o ng o
B o livia
Ghana
M o ng o lia
N icarag ua
A rmenia
C amero o n
Et hio p ia
M ali
C ap e V erd e
Hait i
Leso t ho
T anz ania
Lao s
R wand a
Sierra Leo ne
Guinea- B issau
M aurit ania
B urund i
C o mo ro s
Kyrg yz st an
B urkina F aso
D jib o ut i
M ald ives
D o minica
Saint Lucia
N ig er
M ad ag ascar
U g and a
C ent ral A f rican
Gamb ia
Erit rea
Ho nd uras
M o ld o va
Kenya
B enin
M alawi
Guyana
Seneg al
Guinea
C o ng o D R
U z b ekist an
N ep al
C ô t e d ' Ivo ire
Sri Lanka
Pap ua N ew
Pakist an
Source: Authors calculation. Wolrd Bank,WTI Note: Quintile scale are from the entire sample of low and middle income countries
1st quintile
2nd quintile
3rd quintile
4th quintile
5th quintile
Potential demand arises from poor trade performance and
weak trade capacity …
Trade performance – Several ways to measure..
1.
2.
3.
4.
Growth rate of exports of goods and services
Change in global market share
Change in competitiveness in existing markets
Growth rates of export markets – product and geographic
markets
Sources of export growth: competitiveness or demand
growth?
Competitiveness effect
Gaining
competitiveness in
slow growing markets
Gaining
competitiveness in
fast growing markets
+Azerbaijan, Bangladesh,
Benin, Bhutan, Bolivia, Bosnia and Herzegovina, Burkina
Faso, Cambodia, Chad, Comoros, Djibouti, Ghana, Haiti,
India, Kenya, Kiribati, Laos, Mali, Mauritania, Mozambique,
Rwanda, Samoa, Sierra Leone, Solomon Is,
Sri Lanka, Tajikistan, Togo, Uzbekistan,
Vanuatu, Viet Nam.
++
Angola, Armenia,
Cape Verde, Congo, Equatorial Guinea,
Georgia, Myanmar.
Demand
-Burundi, Cameroon,
Central Afr. Rep., Côte d'Ivoire,
Congo D. R., Dominica Eritrea, Ethiopia, Gambia, Grenada,
Guinea, Guinea-Bissau, Guyana, Honduras, Liberia,
Madagascar, Malawi, Maldives, Moldova, Nepal, Nicaragua,
Pakistan, Papua New Guinea, Saint Lucia, Saint Vincent, Sao
Tome and P., Senegal, Somalia, Sudan, Tanzania, Tonga,
Uganda, Zambia, Zimbabwe.
Losing
competitiveness in
slow growing markets
Source: Authors calculations based on International Trade Center, Trade Performance indicator
+Kyrgyzstan, Mongolia,
Niger, Nigeria, Yemen.
Losing
competitiveness in
fast growing markets
Potential demand arises from poor trade performance and
weak trade capacity …
Trade performance – Several ways to measure..
1.
2.
3.
4.
Growth rate of exports of goods and services
Change in global market share
Change in competitiveness in existing markets
Growth rates of export markets – product and geographic
markets
5. Degree of concentration
Besides trade performance, potential demand should
include trade capacity…
Objective: Find capacity indicators that predict trade
levels
How?
Literature: Infrastructure, Institutions, Incentives
But many measures of each of these – how can we
select?
So we analyzed bilateral trade levels using a “gravity”
model to find out which were most powerful of predictors
trade levels
Besides trade performance, potential demand should
include trade capacity…
Objective: Find indicators that predict trade levels
– Infrastructure
1. Quality of infrastructure and information technology –
LPI (2)
– Institutions
2. Quality of customs – LPI (3)
3. Time to export – Doing Business
– Incentives
4. Peak tariffs (# of lines 3x average tariff level)
5. Tariff overall restrictiveness index - OTRI
Infrastructure, institutions and incentives influence trade
Effects of 1% change in infrastructure, institution, and incentive on exports
Infrastructure
Transport and IT
Time to export
Institutions
Customs efficiency
Incentives
Trade restictions
Tariff peak
WTO
Control variables
(selected)b
a
a
FTA
Distance
GDP of importer
-3
0
Change in exports %
Note: Marginal effects calculates at the average of the sample. a represents the change passing from zero to one. The rest
of the variables refers to change of 1 percentage point. bOther control variables are listed in the Annex.
Infrastructure, institutions and incentives influence trade
Effects of 1% change in infrastructure, institution, and incentive on exports
Infrastructure
Transport and IT
Time to export
Institutions
Customs efficiency
Incentives
Trade restictions
Tariff peak
WTO
Control variables
(selected)b
a
a
FTA
Distance
GDP of importer
-3
-2
-1
00
1
2
3
4
5
Change in exports %
Note: Marginal effects calculates at the average of the sample. a represents the change passing from zero to one. The rest
of the variables refers to change of 1 percentage point. bOther control variables are listed in the Annex.
About 60% of LDCs figure in the bottom two quintiles of
infrastructure rankings for all developing countries
100%
80%
Passing from the fourth
quintile to the third quintile
raise trade by 35%
60%
40%
20%
0%
LDC
Source: Authors calculation based on World Bank, LPI Indicators
Other low income
Middle Income
Quantifying “potential demand”… adding it up
Trade performance
1 Growth of exports
2 Change in market share
3 Competitiveness in existing markets
4 Demand structure
5 Concentration- diversification
Capacity
6 Infrastructure
7 Customs
8 Time to export
9 Tariff peaks
10 Overall tariff restrictiveness
Score every country on 10
dimensions
1 for highest quintile…to 5 for
lowest quintile
Least demand (best score) = 10….
to highest need for aid for trade =
50
Potential demand for aid for trade
Countries in the bottom two quintiles
Co ng o
Leso t ho
Tanzania
M o ld o va
Gab o n
Co lo mb ia
V anuat u
Lao s
Hait i
Gamb ia
Zamb ia
Ug and a
Sud an
M aurit ius
Kyrg yzst an
Saint V incent and t he
Sao To me and Princip e
B urund i
Parag uay
M ali
Guinea
Et hio p ia
B urkina Faso
So lo mo n Is
Y emen
Syrian A rab Rep ub lic
Co mo ro s
Rwand a
Pap ua New Guinea
Nig er
M ad ag ascar
M icro nesia
Fiji
Nep al
Erit rea
Tajikist an
Namib ia
Uzb ekist an
Jamaica
Co ng o DR
B enin
So malia
Samo a
M alawi
East Timo r
Cent ral A f rican
Sierra Leo ne
Guyana
Source: Authors calculation based on data from ITC and World Bank.
Does potential demand match supply?
Aid for trade (GDP) is function of p.c. income, aid effectiveness,
and potential demand…
ARM
GEO
Supply of aid for trade /GDP
BIH
VUT
SLB
NIC
DMA
MNG
Good news: positive
correlation
BOL
KHM
CPV
VNM
LBR
MOZ
Other news: many
countries underserved
MRT
TMP
STP
LAO
AZE
CMR KGZ
LCA
CAF
BEN
TON
HTI
ZMB
COG
COM PNGTJK
MDA
LKA
SEN
BTN
KEN
HND
GNB
GRD
GIN
AGO
SDN
BFA
YEM
KIR
LSO
GMB
NPL
RWA
ETH
GHA
MWI
UZB
BDI
PAK MLI
TZA
MDG
BGD
DJI
SLE
CIVNGA NER
ZAR
UGA
MDV
ERI
IND
GNQ
TGO
TCD
Potential demand for aid for trade
Source: Authors calculation based on 2006 cross section regression
GUY
Conclusions… Aid for trade potential demand outstrips
current supply
While trade performance of developing countries as a group has
been strong, many countries are performing below average and
many countries are vulnerable to a slowing global economy
Particular at risk are those with poor trade performance – slow
growth, declining market shares, and concentrated exports –
…and those with poor infrastructure, institutions and export
incentives
While aid for trade supply is broadly correlated with potential
demand, still, several countries that have the highest potential
demand are receiving less- than- average levels of aid for trade.
Conclusions… A corollary about indicators
Several indicators of trade performance are readily available
from the World Trade Indicators, the International Trade Center,
and the WTO’s Trade Profiles
Indicators of trade capacity also are available, and several are
strong predictors of future trade performance
– Indicators of infrastructure include the infrastructure quality component
of the Logistics Performance Index (used here), the Limao-Venables
index, and the communication index
– Indicators of trade-related institutions include the customs component of
the LPI and the time to export index of the Doing Business.
– Indicators of incentives to exports include the tariff peak index and the
OTRI
But indicator gaps still remain, particularly on NTBs,
implementation of FTAs, and services restrictions. The
international community has to invest more in filling these gaps.
Selected References
For details to this presentation, see Elisa Gamberoni and Richard Newfarmer “Aid for
Trade: Matching Potential Demand with Supply” World Bank, Sept 15, 2008
Collier, P. and D. Dollar (2002),“Aid allocation and poverty reduction”, European Economic
Review, Vol. 46 (8), pp. 1475-1500.
Djankov, S., Freund, C. and S. Pham Cong (2006), “Trading on time”, Policy Research Working
Paper 3909, The World Bank.
Francois J. and M. Manchin (2007), “Institutions, Infrastructure, and Trade”, IIDE Discussion
Papers 2007-401, Institute for International and Development Economics.
Hoekman B. and A. Nicita (2008), “Trade Policy, Trade Costs and Developing Country Trade”.
Jansen, M. (2004), “Income volatility in small and developing economies: export concentration
matters”, World Trade Organization Publication.
Limao, N. and Venables, A. J. (1999), “Infrastructure, geographical disadvantage, and transport
costs”, Policy Research Working Paper 2257, The World Bank.
Nordas, H. and R. Piermartini (2004),“Infrastructure and Trade”, WTO Staff Working Paper, World
Trade Organization.
Turnovsky, S.J. and P. Chattopadhyay (2003), "Volatility and Growth in Developing Economies:
Some Numerical Results and Empirical Evidence", Journal of International Economics 59.
Wilson, J. S., Mann, C. L. and T. Otsuki (2004), “Assessing the potential benefit of trade
facilitation: A global perspective”, Policy Research Working Paper 3224, The World Bank.
Aid for Trade:
Matching Demand with Supply
Richard Newfarmer
World Bank
Geneva, Sept 15 2008
WTO Experts Meeting
This presentation is based on Elisa Gamberoni and Richard Newfarmer
“Aid for Trade: Matching Potential Demand with Supply” World Bank,
Sept 15, 2008