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Research on Trading Across Borders

Doing Business considers the following list of papers as relevant for research on trading across borders. Some papers—denoted with an asterisk (*)—use Doing Business data for their empirical analysis. If we've missed any important research, please let us know.

Author(s): Persson, M

Journal: Journal of International Trade and Economic Development.

Abstract: This paper examines the link between trade facilitation and export variety for a broad cross‐section of countries. We measure trade facilitation using port efficiency. We also include the bilateral import tariff and OECD membership and regional trade agreements. We find that port efficiency contributes significantly to the extensive margin of exports, and that the bilateral import tariff negatively impacts the variety of exports. The positive effect is confirmed when examining trade between countries without common land borders, or between OECD member countries and non‐OECD countries. Results are not as strong when we look at within‐OECD trade, or focus on bilateral trade in the intensive margin.

Author(s): Hummels, David L., and Georg Schaur

Journal: American Economic Review.

Abstract: A large and growing share of international trade is carried on airplanes. Air cargo is many times more expensive than maritime transport but arrives in destination markets much faster. We model firms' choice between exporting goods using fast but expensive air cargo and slow but cheap ocean cargo. This choice depends on the price elasticity of demand and the value that consumers attach to fast delivery and is revealed in the relative market shares of firms who air and ocean ship. We use US imports data that provide rich variation in the premium paid for air shipping and in time lags for ocean transit to identify these parameters and extract consumer's valuation of time. By exploiting variation across US entry coasts we are able to control for selection and for unobserved shocks to product quality and variety that affect market shares. We estimate that each day in transit is equivalent to an ad-valorem tariff of 0.6 to 2.3 percent and that the most time-sensitive trade flows are those involving parts and components trade. These results suggest a link between sharp declines in the price of air shipping and rapid growth in trade as well as growth in world-wide fragmentation of production. Our estimates are also useful for assessing the economic impact of policies that raise or lower time to trade such as security screening of cargo, port infrastructure investment, or streamlined customs procedures.

Author(s): Hillberry, Russell and Xiaohui Zhang

Journal: World Bank Policy Research Working Paper

Abstract: The 2013 World Trade Organization ministerial in Bali produced a comprehensive framework agreement on trade facilitation. If fully implemented, the agreement should increase the speed and reduce the cost of moving goods across international borders. But which reforms are most likely to improve these outcomes, how much improvement should be expected, and what might such improvements be worth? This paper adopts the Organisation for Economic Co-operation and Development's trade facilitation indicators as quantitative descriptions of trade facilitation policy. It estimates the impact of the indicators and other variables on the time necessary to clear customs, the associated cost, and a customs performance index. Of the 12 policy bundles, the good governance and impartiality indicator is most clearly related to customs clearance time. A move to best practice in all policies by all World Trade Organization members would reduce the predicted time spent in customs by an average of 1.6 days for imports and 2 days for exports. Using a conservative estimate of the value of time in trade, such comprehensive reforms imply a mean tariff equivalent reduction of 0.9 percentage points on imports and 1.2 percentage points on exports. The same estimates are used to calculate welfare gains of policy reform by World Trade Organization members. Reform in China alone accounts for roughly one-fourth of the global benefits from the Trade Facilitation Agreement.

Author(s): Mendoza Alcantara, Alejandra; Fernandes, Ana Margarida; Hillberry, Russell Henry;

Journal: World Bank Policy Research Working Paper

Abstract: Freight forwarders play a key role in moving goods across international borders. They arrange transport, oversee customs clearance on behalf of their clients, and more generally troubleshoot issues that arise while goods are in transit. This paper reports the results from a survey of 153 freight forwarding firms in Serbia. Respondents report on firm characteristics, operational choices, and conditions at the border posts and terminals where imported goods are cleared for release. One key purpose of the study is to investigate operational trade-offs between time and cost that arise when import shipments are in transit. In three of four hypotheticals, respondents suggest that money savings dominate time savings. Responses regarding real operational decisions such as route choices reinforce this finding. Respondents also reported penalty rates for late delivery of import shipments as well as the value of a typical import shipment. From these responses, it is estimated that the contracted value of one additional (unexpected) day of delivery time in Serbia appears to be approximately 1 percent of the value of the underlying shipment.

Author(s): Rocha, Nadia; Freund, Caroline

Journal: The World Bank Economic Review

Abstract: Africa's share of global exports has dropped by 50 percent over the last three decades. To stem this decline, aid for trade to the region has increased rapidly in recent years. Assistance can target improvements in three important components of trade facilitation: transit times, documentation, and ports and customs. Of these, transit delays have the most economically and statistically significant effect on exports. Specifically, a one day reduction in inland travel times leads to a 7 percent increase in exports, after controlling for the standard determinants of trade and potential endogeneity. Put another way, a one day reduction in inland travel times translates into a 2 percentage point decrease in all importing-country tariffs. By contrast, longer delays in the other areas have a far smaller impact on trade. Large transit delays are relatively more harmful because they are associated with high (within-country) variation, making delivery targets difficult to meet. Finally, the results imply that transit times are primarily about institutional features -- such as border delays, road quality, fleet class and competition and security -- and not geography.

Author(s): Volpe Martincus, Christian, Jerónimo Carballo, and Alejandro Graziano

Journal: Journal of International Economics 96 (1): 119-37.

Abstract: All international trade transactions are processed by custom agencies and such processing takes time. Despite the fact that time is a key trade barrier, the time it takes for shipments to clear customs and how customs' processing times affect firms' exports remain largely unknown. In this paper, we precisely estimate the effects of custom-related delays on firms' exports. In so doing, we use a unique dataset that consists of the universe of Uruguay's export transactions over the period 2002?2011 and includes precise information on the actual time it took for each of these transactions to go through customs. We account for potential endogeneity of these processing times by exploiting the conditional random allocation of shipments to different verification channels associated with the use of risk-based control procedures. Results suggest that delays have a significant negative impact on firms' exports along several dimensions. Effects are more pronounced on sales to newer buyers.

Author(s): Tang, Heiwai

Journal: Journal of International Economics, Volume 87, Issue 2, Pages 337-351, July 2012

Abstract: This paper studies how a country's labor market institutions, by affecting workers' skill acquisition, can shape its export patterns. I develop an open-economy model in which workers undertake non-contractible activities to acquire firm-specific skills on the job. In the model, labor market protection raises workers' incentives to acquire firm-specific skills relative to general skills, turning labor laws into a source of comparative advantage. In particular, the model shows that countries with more protective labor laws export relatively more in firm-specific skill-intensive sectors at both the intensive and extensive margins. To test the theoretical predictions. I construct sector proxies for the firm-specific and industry-specific skill intensity by estimating returns to firm tenure and industry tenure for different U.S. manufacturing sectors during the 1974-1993 period. By estimating sector-level gravity equations for 84 countries using the Helpman-Melitz-Rubinstein (2008) framework, I find evidence supporting the predicted effects of labor market institutions at both margins of exports.

Author(s): Dennis, Allen; Shepherd, Ben

Journal: The World Economy

Abstract: This paper shows that improved trade facilitation can help promote export diversification in developing countries. We find that 10 per cent reductions in the costs of international transport and domestic exporting costs (documentation, inland transport, port and customs charges) are associated with export diversification gains of 4 and 3 per cent, respectively, in a sample of 118 developing countries. Customs costs play a particularly important role in these results. Lower market entry costs can also promote diversification, but the effect is weaker (1 per cent). We also find evidence that trade facilitation has stronger effects on diversification in poorer countries. Our results are highly robust to estimation using alternative dependent and independent variables, different country samples, and alternative econometric techniques. We link these findings to recent advances in trade theory that emphasise firm heterogeneity, and trade growth at the extensive margin.

Author(s):  Arvis, Jean-Francois, Monica Alina Mustra, Mona Haddad, Bernard Hoekman, Lauri Ojala, Daniel Saslavsky and Ben Shepherd

Journal:  World Bank Policy Research Working Paper

Abstract: This report presents the findings of the second edition of Connecting to Compete, a report on the new dataset for the 2010 Logistics Performance Index (LPI) and its component indicators. Based on a worldwide survey of global freight forwarders and express carriers, the LPI is a benchmarking tool developed by the World Bank that measures performance along the logistics supply chain within a country. The index can help countries identify challenges and opportunities and improve their logistics performance. The World Bank conducts the survey every two years. The 2010 LPI also provides a snapshot of selected performance indicators in nearly 130 countries, including expanded information on the time, cost, and reliability of import and export supply chains, infrastructure quality, performance of core services, and the friendliness of trade clearance procedures. The 2010 LPI and its indicators encapsulate the firsthand knowledge of movers of international trade, collected amid the economic turmoil of 2009. This information is relevant for policymakers and the private sector seeking to identify priorities for reform agendas. Findings include the following. First, except in high-income countries, the availability and quality of trade-related infrastructure is a major constraint to performance, but the specific priorities tend to vary across countries. Second, efficient border management and coordination of the various agencies involved in border clearance is increasingly important. Third, a major challenge for the international community is how to help the lowest performing countries benefit from an increasingly open global trading system.

Author(s): Caroline Freund and Bineswaree Bolaky

Journal: Journal of Development Economics, Volume 87, Issue 2, October 2008, Pages 309-321

Abstract: We examine the relationship between openness and per-capita income using cross-country data from 126 countries. We find that trade leads to a higher standard of living in flexible economies, but not in rigid economies. Business regulation, especially on firm entry, is more important than financial development, higher education, or rule of law as a complementary policy to trade liberalization. Specifically, after controlling for the standard determinants of per-capita income, our results imply that a 1% increase in trade is associated with more than a one-half percent rise in per-capita income in economies that facilitate firm entry, but has no positive income effects in more rigid economies. The findings are consistent with Schumpeterian ?creative destruction?, which highlights the importance of new business entry in economic performance, and with previous firm-level studies showing that the beneficial effects of trade liberalization come largely from an intra-sectoral reallocation of resources.

Author(s): Shepherd, Ben; Wilson, John S

Journal: Journal of Asian Economics

Abstract: This paper reviews progress and indicators of trade facilitation in member countries of the Association of Southeast Asian Nations. The findings show that import and export costs vary considerably in the member countries, from very low to moderately high levels. Tariff and non-tariff barriers are generally low to moderate. Infrastructure quality and services sector competitiveness range from fair to excellent. Using a standard gravity model, the authors find that trade flows in Southeast Asia are particularly sensitive to transport infrastructure and information and communications technology. The results suggest that the region could make significant economic gains from trade facilitation reform. These gains could be considerably larger than those from comparable tariff reforms. Estimates suggest that improving port facilities in the region, for example, could expand trade by up to 7.5% or $22bn. The authors interpret this as an indication of the vital role that transport infrastructure can play in enhancing intra-regional trade.

Author(s): David Hummels

Journal: Journal of Economic Perspectives, 21(3): 131?154, 2007

Abstract: While the precise causes of postwar trade growth are not well understood, declines in transport costs top the lists of usual suspects. However, there is remarkably little systematic evidence documenting the decline. This paper brings to bear an eclectic mix of data in order to provide a detailed accounting of the time-series pattern of shipping costs. The ad-valorem impact of ocean shipping costs is not much lower today than in the 1950s, with technological advances largely trumped by adverse cost shocks. In contrast, air shipping costs have dropped an order of magnitude, and airborne trade has grown rapidly as a result. As a result, international trade has also experienced a significant rise in speed.

Author(s):  Dutt, Pushan, and Daniel Traca

Journal: The Review of Economics and Statistics, 2010, vol. 92, issue 4, pages 843-860

Abstract:  We analyze the impact of corruption on bilateral trade, highlighting its dual role in terms of extortion and evasion. Corruption taxes trade, when corrupt customs officials in the importing country extort bribes from exporters (extortion effect); however, with high tariffs, corruption may be trade enhancing when corrupt officials allow exporters to evade tariff barriers (evasion effect). We derive and estimate a corruption-augmented gravity model, where the effect of corruption on trade flows is ambiguous and contingent on tariffs. Empirically, corruption taxes trade in the majority of cases, but in high-tariff environments (covering 5% to 14% of the observations) their marginal effect is trade enhancing. (c) 2010 The President and Fellows of Harvard College and the Massachusetts Institute of Technology

Author(s): Anderson, J.E. and E. van Wincoop

Journal: Journal of Economic Literature, vol. 42, No. 3; pp. 691-751, 2004

Abstract: This paper surveys the measurement of trade costs ? what we know, and what we don?t know but may usefully attempt to find out. Partial and incomplete data on direct measures of costs go together with inference on implicit costs from trade flows and prices. Total trade costs in rich countries are large. The ad valorem tax equivalent is about 170% when pushing the data very hard. Poor countries face even higher trade costs. There is a lot of variation across countries and across goods within countries, much of which makes economic sense. Theory looms large in our survey, providing interpretation and perspective on the one hand and suggesting improvements for the future on the other hand. Some new results are presented to apply and interpret gravity theory properly and to handle aggregation appropriately.

Author(s): Ximena Clark, David Dollar, Alejandro Micco

Journal: Journal of Development Economics

Abstract: Recent literature has emphasized the importance of transport costs and infrastructure in explaining trade, access to markets, and increases in per capita income. For most Latin American countries, transport costs are a greater barrier to U.S. markets than import tariffs. We investigate the determinants of shipping costs to the U.S. with a large database of more than 300,000 observations per year on shipments of products aggregated at six-digit HS level from different ports around the world. Distance volumes and product characteristics matter. In addition, we find that ports efficiency is an important determinant of shipping costs. Improving port efficiency from the 25th to the 75th percentile reduces shipping costs by 12 percent. (Bad ports are equivalent to being 60% farther away from markets for the average country.) Inefficient ports also increase handling costs, which are one of the components of shipping costs. Reductions in country inefficiencies associated to transport costs from the 25th to 75th percentiles imply an increase in bilateral trade of around 25 percent. Finally, we try to explain variations in port efficiency and find that they are linked to excessive regulation, the prevalence of organized crime, and the general condition of the country's infrastructure.

Author(s): Andrei A. Levchenko

Journal: Review of Economic Studies (2007) 74, 791?819

Abstract: Institutions-quality of contract enforcement, property rights, shareholder protection, and the like-have received a great deal of attention in recent years. Yet trade theory has not considered the implications of institutional differences, beyond treating them simply as different technologies or taxes. The purpose of this paper is twofold. First, we propose a simple model of international trade in which institutional differences are modelled within the framework of incomplete contracts. We show that doing so reverses many of the conclusions obtained by equating institutions with productivity. Institutional differences as a source of comparative advantage imply, among other things, that the less developed country may not gain from trade and factor prices may actually diverge as a result of trade. Second, we test empirically whether institutions act as a source of trade, using data on U.S. imports disaggregated by country and industry. The empirical results provide evidence of "institutional content of trade": institutional differences are an important determinant of trade flows.

Author(s): Fernandes, Ana Margarida; Hillberry, Russell; Mendoza Alcantara, Alejandra

Journal: Policy Research working paper; no. WPS 7210; Impact Evaluation series.

Abstract: Despite enormous academic interest in international trade costs and keen policy interest in efforts to mitigate them, so far there is very little hard evidence on the impacts of trade facilitation efforts. This paper exploits a dramatic reduction in the rate of physical inspections by Albanian customs to estimate the effects of fewer inspection-related delays on the level and composition of imports. In this setting, the paper finds evidence that the expected median number of days spent in Albanian customs falls by 7 percent when the probability that a shipment is inspected falls from 50 percent or more to under 50 percent. In turn, this reduction in time produces a 7 percent increase in import value. The paper finds evidence that the reforms favored imports from preferential trading partners, especially the European Union. There are also reform-induced changes in the composition of trade, including increases in average quantities and unit prices, the number of shipments, and the number of importing firms per product-country pair and the number of countries per firm-product pair. A back-of-the-envelope calculation suggests that the estimate of 7 percent import growth along an intensive margin is roughly consistent with a 0.36 percentage point reduction in average tariff equivalent trade costs. Applying this figure to the value of Albania's non-oil imports produces a reform-induced trade cost savings estimate of approximately US$12 million in 2012.

Author(s): Lopez-Claros, Augusto

Journal: Journal of International Commerce, Economics and Policy. Volume 6, No. 1: 1-35.

Abstract: This paper examines causes and consequences of corruption within the process of economic development. Drawing on experiences and insights accumulated during the post-war period and reflected in a growing body of academic research, the paper analyzes institutional mechanisms that sustain corruption and the impact of corruption on development. It argues that many forms of corruption stem from the distributional attributes of the state in its role as the economy's central agent of resource allocation. It also addresses the question of what can be done about corruption and discusses the role of economic policies in developing incentives and institutions to reduce its incidence.

Author(s): Sá Porto, Paulo C.; Morini, Cristiano; and Canuto, Otaviano

Journal: World Bank Policy Research Working Paper

Abstract: This paper analyzes the impacts of selected trade facilitation measures on international trade flows. A gravity model is used to estimate four equations: a pooled cross-section model; a fixed-effects model; a random effects model; and a Poisson maximum likelihood estimator. The contribution of the paper is twofold. First, the analysis uses a recent data set, a panel that includes trade data from 2011 and 2012 for 72 countries. Second, to measure the impacts of trade facilitation measures, the analysis includes dummy variables for the presence of an authorized economic operator program, the existence of a single-window program in the countries in the sample, and the existence of a mutual recognition arrangement between pairs of countries in the sample. The results show that the presence of an authorized economic operator program and the existence of a single-window program will improve countries’ trade performance. By contrast, the existence of a mutual recognition arrangement will not necessarily improve countries’ trade performance. These results suggest that, in general, trade facilitation measures as a whole will help countries improve their trade performance

Author(s):  Marti, Luisa; Puertas, Rosa; Garcia, Leandro

Journal:  The Journal of International Trade; Economic Development

Abstract: The objective of this article is to analyse trade flows in emerging nations with a maritime boundary, where trade facilitation plays a decisive role in their international development. In order to detect possible patterns in performance, we apply the economic approach of gravity models using the World Bank Logistic Performance Index (LPI) as a good proxy of trade facilitation. The results of the estimation lead to the conclusion that the more complex the transportation of goods is, the more influential the logistics indicator, trade facilitation being most prominent in Middle East exporters.

Author(s): Sanghamitra Das , Mark J. Roberts and James R. Tybout

Journal: Econometrica, Volume 75 Issue 3, Pages 837 - 873, 2010

Abstract: As the exchange rate, foreign demand, and production costs evolve, domestic producers are continually faced with two choices: whether to be an exporter and, if so, how much to export. We develop a dynamic structural model of export supply that characterizes these two decisions. The model embodies plant-level heterogeneity in export profits, uncertainty about the determinants of future profits, and market entry costs for new exporters. Using a Bayesian Monte Carlo Markov chain estimator, we fit this model to plant-level panel data on three Colombian manufacturing industries. We obtain profit function and sunk entry cost coefficients, and use them to simulate export responses to shifts in the exchange-rate process and several types of export subsidies. In each case, the aggregate export response depends on entry costs, expectations about the exchange rate process, prior exporting experience, and producer heterogeneity. Export revenue subsidies are far more effective at stimulating exports than policies that subsidize entry costs.

Author(s): Portugal-Perez, Alberto; Wilson, John S.

Journal: World Development, Volume 40, Issue 7, Pages 1295-1307, July 2012

Abstract: We estimate the impact of aggregate indicators of "soft" and "hard" infrastructure on the export performance of developing countries. We derive four new indicators for more than 100 countries over the period 2004-07. Estimates show that trade facilitation reforms do improve the export performance of developing countries. This is particularly true with investment in physical infrastructure and regulatory reform to improve the business environment. The findings provide evidence that the marginal effect of the transport efficiency and business environment improvement on exports appears to be decreasing in per capita income. In contrast, the impact of physical infrastructure and information and communications technology on exports appears increasingly important the richer a country becomes. We also find statistical evidence on the complementarity between hard infrastructure and soft infrastructure, as captured by our indicators. Finally, drawing on estimates, we compute illustrative ad-valorem equivalents of improving each indicator halfway to the level of the top performer in the region.

Author(s):  Cecília Hornok

Journal:  Working Paper, Central European University 

Abstract: Timeliness has gained growing importance in international trade. This paper provides empirical evidence on the significant cost of time in trade by exploiting the quasi-experimental nature of the European Union (EU) enlargement in 2004. It applies a difference-in-difference-in-differences econometric strategy on a European industry-level database of bilateral trade barriers, where industries are differentiated according to their time sensitivity. The use of a treatment intensity indicator that captures the decline in the waiting time at borders supports the identification. Results are cross-checked on subsamples defined along transport mode choice probabilities, where intra-EU transport mode choice projections are obtained from an estimated discrete choice model on extra-EU trade. Robustness checks experiment with alternative definitions of treatment sensitivity and treatment intensity. 

Author(s): OECD

Journal:  OECD Trade Policy Studies

Abstract: [book]

Author(s): Moise, Evdokia, Thomas Orliac, and Peter Minor

Journal: OECD Trade Policy Papers 

Abstract: This report presents the findings of the OECD indicators for assessing the economic and trade impact of specific trade facilitation measures in OECD countries. Twelve trade facilitation indicators (TFIs) have been constructed, corresponding to the main policy areas under negotiation at the WTO, with the aim to estimate the impact of addressing specific facilitation hurdles in the trade procedures of a given country. For OECD countries, the policy areas that seem to have the greatest impact on trade volumes and trade costs are advance rulings, information availability, formalities and procedures and inter-agency cooperation. If all TFIs are added their cost reduction potential would reach almost 10% of trade costs, which is an estimate consistent with existing literature. The use of individual trade facilitation indicators should enable countries to better assess which trade facilitation dimensions deserve priority. The OECD TFI project is now expanded to cover countries outside the OECD area.