Do natural resource-based industrialization strategies convey important (unrecognized) price benefits for commodity-exporting developing countries?

Two objectives of international commodity policy have been to reduce instability in exporter's earnings and importer's prices through international (buffer stock) agreements and to encourage further processing of domestically produced commodities by developing countries. However, it appears that little attention has been given to potential interrelations between these objectives. Using the World Bank's commodity processing classification scheme this study shows that a major structural shift occurred from the mid-1960s to late 1980s in the composition of developing countries'exports toward most processed commodities, and this change was reflected to varying degrees in all major developed country import markets. However, the developing countries actually responsible for the further processing often were not major producers of the primary commodity. This finding suggests that internal constraints to commodity processing may often be more important than external barriers like escalating tariffs. This study also established that the shift resulted in developing countries receiving considerably more stable agricultural materials and ores and metals export prices--and to a lesser extent prices for foodstuffs--as well as more favorable long-term price changes. Both factors should further enhance efforts by developing countries to encourage local processing of domestically produced primary commodities.Crops&Crop Management Systems,Environmental Economics&Policies,Economic Theory&Research,Trade Policy,TF054105-DONOR FUNDED OPERATION ADMINISTRATION FEE INCOME AND EXPENSE ACCOUNT

Are partner-country statistics useful for estimating"missing"trade data?

Because many developing countries fail to report trade statistics to the United Nations, there has been an interest in using partner-country data to fill these information gaps. The author used partner-country statistics for 30 developing countries to"estimate"actual (concealed) trade data and analyzed the magnitude of the resulting errors. The results indicate that partner-country data are unreliable even for estimating trade in broad aggregate product groups such as foodstuffs, fuels, or manufactures. Moreover, tests show that the reliability of partner-country statistics degenerates sharply as one moves to more finely distinguished trade categories (lower-level SITCs). Equally disturbing, about one-quarter of the partner-country comparisons take the wrong sign. That is, one country's reported free-on-board (f.o.b.) exports exceed the reported cost-insurance-freight (c.i.f.) value of partners'imports. Aside from product composition, tests show that partner-country data are equally inaccurate for estimating the direction of trade. Why are partner-country data so unreliable for approximating"missing"data? Evidence shows: 1) problems in reporting or processing COMTRADE data; 2) valuation differences (f.o.b. versus c.i.f.) for imports and exports; 3) problems relating to entrepot trade, or exports originating in export processing zones; 4) problems associated with exchange-rate changes; 5) intentional or unintentional misclassification of products; 6) efforts to"conceal"trade data for proprietary reasons; and 7) financial incentives to purposely falsify trade data. The author concludes that efforts to improve the general quality, or availability, of trade statistics using partner-country data holds little or no promise, although this information may be useful in specific cases where the trade statistics of a certain country are known to incorporate major errors. Significant progress in ugrading the accuracy, and coverage, of trade statistics can be achieved only by improving each country's procedures for data collection.ICT Policy and Strategies,Trade Policy,Economic Theory&Research,Environmental Economics&Policies,Statistical&Mathematical Sciences,TF054105-DONOR FUNDED OPERATION ADMINISTRATION FEE INCOME AND EXPENSE ACCOUNT,Trade Policy,Environmental Economics&Policies,Economic Theory&Research,ICT Policy and Strategies

What do alternative measures of comparative advantage reveal about the composition of developing countries'exports?

Despite their extensive applications in research and policy studies, no product level comparisons had been made between Bela Balassa's"revealed"comparative advantage (RCA) index and indices associated with the National Bureau of Economic Research (NBER) that reflect the standard Hecksher-Ohlin theory of comparative advantage. The author conducted several empirical tests for developing countries'exports of manufactured products, partly to identify factors that often lead to differences between the two indices. The results show that products in which developing countries have achieved a revealed comparative advantage are highly concentrated in a broad group of labor-intensive products; for other items, their RCAs are generally below unity. Within the labor-intensive group, however, developing countries failed to develop a revealed comparative advantage for about half of the items. A regression model suggests that in the labor-intensive group, revealed comparative advantage falls as the requirements increase for natural resources, for physical capital, and for human capital - including higher per capita wages, and more professional or technical personnel.Economic Theory&Research,Environmental Economics&Policies,Water and Industry,Inequality,Banks&Banking Reform

Can preshipment inspection offset noncompetitive pricing of development countries'imports? The evidence from Madagascar

Many developing countries use preshipment inspection (PSI) firms to counter the adverse effects on their foreign trade of certain pricing and business practices. These firms may also perform some national customs functions, but their key responsibility is normally to verify that imports (and sometimes exports) meet quality and quantity standards and that prices are within established norms. Developing countries make substantial payments for PSI - charges appear to average about 1 percent of the value of the goods inspected - but have undertaken no comprehensive cost-benefit studies of PSI. Using data from Madagascar's experience, the author analyzes the impact of PSI on Madagascar's relative import prices. The results suggest that Madagascar paid considerably higher prices than other developing and industrial countries both before and after PSI was adopted. In other words, preshipment inspection failed to reduce Madagascar's import prices to the level of those paid by other importers. Extreme prices occur for all types of goods imported by Madagascar but are clustered in chemicals and basic manufactures. Evidence suggests that collaborative false invoicing by Madagascar importers and industrial country exports is one reason for the excessive prices both before and after adoption of PSI.Economic Theory&Research,Export Competitiveness,Environmental Economics&Policies,Access to Markets,Markets and Market Access

Have transport costs contributed to the relative decline of sub-Saharan African exports? Some preliminary empirical evidence

From the mid-1950s to 1990, sub-Saharan Africa's share of global exports fell from 3.1 to under 1.2 percent, a decline that implies associated export earning losses of about $65 billion annually. Previous studies show that foreign trade barriers do not account for this poor performance. Indeed, African exports enjoy OECD tariff preferences. In the sub-Saharan African countries, too high a proportion of foreign exchange earnings is paying for Africa's high export transport costs. The authors demonstrate that relatively high transportation costs - especially for processed products - often place African exporters at a serious competitive disadvantage. African countries must use a far larger share of their foreign exchange earnings to pay for international transport services than other developing countries do - and the relative importance of those payments has been increasing. Why are Africa's transport costs so high? Ill-advised policies on the part of some African governments seem to have played a role, as their cargo reservation policies produced high"rents"for lines that have been shielded from the effects of competition. The failure to maintain or improve port and transport infrastructure has also played a role.Rural Roads&Transport,Economic Theory&Research,Transport and Trade Logistics,Common Carriers Industry,Environmental Economics&Policies,Transport and Trade Logistics,Common Carriers Industry,TF054105-DONOR FUNDED OPERATION ADMINISTRATION FEE INCOME AND EXPENSE ACCOUNT,Environmental Economics&Policies,Economic Theory&Research

Do African countries pay more for imports ?

Using extensive time series information on unit values for homogenous goods, this paper first examines the distribution of import prices paid by developing countries whose trade is highly concentrated with a major exporting country (France), and compares these prices with those paid to France by other countries whose imports come from more diversified sources. The analysis employs correlation and regression tests to account for the influence of other economic and institutional factors such as the degree of market concentration, size of the importing market, or the number of alternative trading contacts on relative prices. The paper closes with an overall assessment of the findings for developing countries'trade and commercial policies and also suggests some lines of related research that appear to have a high priority.Access to Markets,Markets and Market Access,Environmental Economics&Policies,Economic Theory&Research,Water and Industry

Do Caribbean exporters pay higher freight costs?

The objective of this study is to analyze transportation costs incurred by Caribbean countries on their major export products to determine whether there is evidence of freight rate discrimination against these countries, or whether their transport costs are significantly different from those of other exporters. A key finding is that a distinction must be made between freight rates for air cargo services as opposed to ocean transport. For exports by ocean carriers the empirical evidence is quite different than that for air shipments. This study also finds that Caribbean exporters are more likely to experience adverse transport costs on food and agricultural raw materials than they are on manufactured goods where a relatively high percentage of shipments are by air. The report also suggests the following lines of analysis: how the Caribbean countries might best exploit the major cost advantage they have for products exported by air, why is ocean transport less cost efficient than air freight for Caribbean countries, and why do large adverse transport cost differentials appear to be concentrated in certain product groups like food and agricultural raw materials?Transport and Trade Logistics,Common Carriers Industry,Economic Theory&Research,TF054105-DONOR FUNDED OPERATION ADMINISTRATION FEE INCOME AND EXPENSE ACCOUNT,Rural Roads&Transport

Just how big is global production sharing?

Sharing different stages of manufacturing between countries is of major and growing importance. But because of previous deficiencies in the Standard International Trade Classification (SITC Revision 1) system, it was not possible to differentiate between the international trade in components and parts and the exchange of fully fabricated manufactured goods. Such a distinction was needed to empirically estimate theamount of global production sharing. Changes in the SITC classification system (Revision 2) now allow one to approximate how much production sharing occurs within the key machinery and transportation equipment (SITC 7) group, which includes about 50 percent of world trade in all manufactures. In 1995, OECD (Organization for Economic Cooperation and Development) exports of parts and components in this group totaled $440 billion, which was about 30 percent of all shipments (components plus assembled goods) of machinery and transportation equipment. Developing countries produced and exported an additional$100 billion of these products -- which indicates global exports exceeded one-half trillion dollars. But the extent of production sharing is clearly greater than these figures indicate, because the SITC Revision 2 system does not allow one to distinguish between components and parts in chemicals or other manufactured goods. The data also show that over the past decade trade in machinery and transport equipment components has grown considerably faster than final stage products in this group. A different form of production sharing involves the use of special tariff provisions for the re-import of domestically produced components that have been assembled abroad. A second data source on this activity indicates that trade in these goods totals about $100 billion annually, with most of the activity involving the European Union and the United States. (Again, the available data probably understate the importance of this exchange.) Even so, these supplemental statistics illustrate the importance of this activity to some developing countries, as more than 40 percent of manufactured exports from the Dominican Republic, El Salvador, Haiti, Jamaica, and Mexico involve assembly operations using components manufactured abroad.Environmental Economics&Policies,Economic Theory&Research,Trade Policy,Common Carriers Industry,Transport and Trade Logistics,Economic Theory&Research,Environmental Economics&Policies,TF054105-DONOR FUNDED OPERATION ADMINISTRATION FEE INCOME AND EXPENSE ACCOUNT,Trade Policy,General Manufacturing

What can be expected from African regional trade arrangements? some empirical evidence

For over three decades, Sub-Saharan African countries have had an interest in regional integration initiatives to accelerate their industrialization and growth. With the help of a more comprehensive database on intra-African trade than was previously available, the author examines a proposal to exchange trade preferences among Sub-Saharan African countries. The data suggest that problems with African regional trade arrangements are more daunting than is generally recognized. Africa's non-oil exports are concentrated in a few products, none of them important regional imports. There is relatively little intra-African trade and the noncomplementary problem in African trade cannot be resolved quickly. Moreover, intra-African trade is highly concentrated, geographically, with almost no trade between East and West Africa. This finding makes less compelling the arguments that regional trade can help overcome problems of small domestic markets. The range of processed products African countries export competitively is extremely narrow and many have a comparative advantage in the same items. Excluding refined petroleum, one or more African countries have a comparative advantage in products that account for about 5 percent of regional imports. In short, regional trade agreements seem to present African with a"lose-lose"situation. If Africa does not develop export capacity in key machinery and transport equipment, the region will continue to depend heavily on third countries for those exports. Dependence on non-African suppliers would seemingly reduce the likelihood of regional arrangements succeeding. However, machinery and transport equipment are normally manufactured using capital-intensive production techniques and Africa has no comparative advantage in those goods. If Africa tries to develop an export capacity in this sector, the goods will be relatively high in cost and probably less reliable than similar products from"efficient"suppliers. Attempts to use such equipment would undercut the competitive position of Sub-Saharan African exporters in global markets. Trade reform on a most-favored-nation basis is a more promising option. Evidence shows a strong positive association between lower trade barriers and economic growth.Common Carriers Industry,Environmental Economics&Policies,Trade Policy,Transport and Trade Logistics,Economic Theory&Research,TF054105-DONOR FUNDED OPERATION ADMINISTRATION FEE INCOME AND EXPENSE ACCOUNT,Economic Theory&Research,Environmental Economics&Policies,Trade Policy,Trade and Regional Integration