Caribbean faces 'disproportionately' higher trade costs

WASHINGTON D.C., United States, Thursday February 7, 2013 – A new database developed jointly by the United Nations Economic and Social Commission for Asia and the Pacific (ESCAP) and the World Bank reveals that trade costs fall disproportionately on the Caribbean and other developing countries.

The World Bank said this has taken place although the international economy has integrated considerably in recent decades. 

“Although developing countries are becoming more integrated into the world trading system in an absolute sense, they are starting from a higher baseline and their relative position is deteriorating because the rest of the world is moving more quickly,” the World Bank said. 

The new Trade Costs database uses an “innovative method” to estimate trade costs in agriculture and manufactured goods, “opening new analytical possibilities for policymakers and researchers interested in trade integration.”

According to the research, trade costs are influenced to varying degrees by distance and transport costs, tariff and non-tariff measures, and logistics. 

The new Trade Costs database which covers the period 1995-2010, outlines the importance of supply chains and connectivity constraints in explaining the higher costs and lower levels of trade integration observed in the Caribbean and other developing countries. 

One of the key findings triggered by the database is that two areas amenable to policy interventions—maritime transport connectivity and logistics performance—are “very important determinants of bilateral trade costs, with an effect comparable to that of geographical distance.” 

The global database shows the pattern of trade costs across countries and through time by offering a comparison of countries and identifying high trade costs. The World Bank said that one telling trend is that for upper middle income countries, it is easier to trade with high income countries than among themselves.

“Neighboring countries in regions like the Middle East and North Africa often have higher trade costs with each other than with the more distant Southern European markets,” said Jean François Arvis, a senior economist at the World Bank’s International Trade Department and one of the database’s principal architects. “This disparity serves to hold back ongoing efforts at regional integration in such areas.”

The Trade Costs database allows policymakers to highlight high trade costs at a bilateral level, identify the key determinants  and focus their efforts on the reduction of those costs. (CMC) Click here to receive free news bulletins via email from Caribbean360. (View sample)