aid for trade: ensuring that the most needy get it
TRANSCRIPT
Aid for Trade: Ensuring That the Most Needy Get It
This presentation is based on Elisa Gamberoni and Richard Newfarmer “Aid for Trade: Matching Potential Demand with Supply” World Bank Policy Research Paper 4991 and Elisa Gamberoni and Richard Newfarmer, “Aid for Trade: Do the Most Needy Get It?” draft 2011
Richard Newfarmer International Growth Centre
Paris, March 28, 2011
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?
Globalization risky? What do you mean?
Why do we care about aid for trade?
Which countries have greatest need…potential demand?
Trade performance Capacity : Infrastructure, Institutions, incentives
Which indicators predict trade level?
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
Aid for Trade / GDP Income p.c., aid effectiveness demand
5 Indicators
5 Indicators
:
Does supply of aid go to countries with the higest demand?
Which countries have less aid for trade than they might demand?
Google map to our logic….
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
Trade performance – Several ways to measure.. 1. Growth rate of exports of goods and services
Potential demand arises from poor trade performance and weak trade capacity …
-15 -10 -5 0 5 10 15
MalawiGuyanaGuinea
Yemen, Rep.Senegal
ZimbabweBeninEritrea
DjiboutiC. African.Republic
Kyrgyz RepublicSamoa
St. LuciaNigeriaKenya
UzbekistanHonduras
MadagascarCameroon
NigerSierra LeoneGambia, The
Congo, Rep.TajikistanSri Lanka
Côte d'IvoireTanzaniaPakistan
NepalBolivia
Burkina FasoMoldova
GhanaMauritania
Congo, DR.AngolaUganda
NicaraguaHaiti
GeorgiaMali
BangladeshBhutan
IndiaLesothoArmeniaEthiopiaGrenada
AzerbaijanBurundi
MyanmarCape Verde
Guinea-BissauLao PDR
CambodiaMozambique
VietnamRwandaZambiaBosnia
Trade performance varies…but 29 low income countries figure in the bottom two quintiles
Source: Authors calculation. World Bank,WTI Note: Quintile scale are from the entire sample of low and middle income countries
3rd quintile
4th quintile
5th quintile
2nd quintile
1st quintile
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
PakistanPapua New
Sri LankaCôte d'Ivoire
NepalUzbekistanCongo DR
GuineaSenegalGuyanaMalawi
BeninKenya
MoldovaHonduras
EritreaGambia
Central AfricanUganda
MadagascarNiger
Saint LuciaDominicaMaldivesDjibouti
Burkina FasoKyrgyzstan
ComorosBurundi
MauritaniaGuinea-Bissau
Sierra LeoneRwanda
LaosTanzaniaLesotho
HaitiCape Verde
MaliEthiopia
CameroonArmenia
NicaraguaMongolia
GhanaBoliviaCongo
GeorgiaMozambique
ZambiaMyanmar
YemenChad
BangladeshCambodia
SudanEquatorial Guinea
AzerbaijanAngolaNigeria
Viet NamIndia
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
Despite export growth, about half of LICs lost market share Low income countries: Change in market share, 1996-2006
Trade performance – Several ways to measure.. 1. Growth rate of exports of goods and services 2. Change in global market share 3. Change in competitiveness in existing markets 4. Growth rates of export markets – product and geographic
markets
Potential demand arises from poor trade performance and weak trade capacity …
Sources of export growth: competitiveness or demand growth?
-- 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.
Competitiveness effect
Source: Authors calculations based on International Trade Center, Trade Performance indicator
Gaining competitiveness in slow growing markets
Gaining competitiveness in fast growing markets
Losing competitiveness in fast growing markets
Losing competitiveness in slow growing markets
+- Kyrgyzstan, Mongolia, Niger, Nigeria, Yemen.
+ - 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
Trade performance – Several ways to measure.. 1. Growth rate of exports of goods and services 2. Change in global market share 3. Change in competitiveness in existing markets 4. Growth rates of export markets – product and geographic
markets 5. Degree of export concentration
Potential demand arises from poor trade performance and weak trade capacity …
0
5
10
15
20
25
30
0 10 20 30 40 50 60 70 80 90 100
Concentration Index
Terms of trade volatility
Developing Countries: Terms of trade volatility (1996-2006)
Source: Authors calculation based on World Bank, Wolrd Development Indicators and World Trade Indicators
Dependence on a few exports exposes countries to terms of trade shocks
0 20 40 60 80 100
NigeriaAngola
Sao Tome and PrincipeYemen
Equatorial GuineaCongo
ComorosSierra Leone
BurundiMali
MauritaniaSamoa
Guinea-BissauBurkina Faso
KiribatiSolomon IsAzerbaijan
BeninGuineaSudan
MalawiZambia
Democratic Republic of the CongoTajikistan
TongaCentral African Republic
EthiopiaRwanda
Saint LuciaVanuatu
HaitiMozambique
CameroonMaldives
Cape VerdeNiger
DominicaGhana
LesothoPapua New Guinea
East TimorBangladesh
Saint Vincent and the GrenadinesMongolia
GambiaCambodia
EritreaUzbekistan
UgandaBhutan
Côte d'IvoireGuyana
GrenadaKyrgyzstan
ArmeniaLao People's Democratic Republic
TogoMyanmar
Tanzania, United Rep. ofZimbabweHonduras
KenyaNepal
SenegalBolivia
Moldova, Rep.ofNicaragua
MadagascarSri LankaPakistan
Viet NamGeorgiaDjibouti
Bosnia and HerzegovinaIndia
Concentration Index – average 1996-2006 Low income countries
Source: Authors calculation. Wolrd Bank,WTI Note: Quintile scale are from the entire sample of low and middle income countries
5th quintile
4th quintile
3rd quintile
2nd quintile
1st quintile
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
What capacity indicators influence bilateral trade?
Trade = 200
Trade = 100
Trade = 50 K
U
S
T
Controls? GDP of home country GDP of partner Distance FTA, WTO membership
Capacity indicators? Infrastructure Institutions Incentives
A gravity model permits us to hold other factors constant
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
Change in exports %
Effects of 1% change in infrastructure, institution, and incentive on 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.
0
Institutions
Incentives
Control variables
(selected)b
Infrastructure
a
a
-3
GDP of importer
Distance
FTA
WTO
Tariff peak
Trade restictions
Customs efficiency
Time to export
Transport and IT
Infrastructure, institutions and incentives influence trade
Change in exports %
Effects of 1% change in infrastructure, institution, and incentive on 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.
0
Institutions
Incentives
Control variables
(selected)b
Infrastructure
a
a
-3 -2 -1 0 1 2 3 4 5
GDP of importer
Distance
FTA
WTO
Tariff peak
Trade restictions
Customs efficiency
Time to export
Transport and IT
0%
20%
40%
60%
80%
100%
LDC Other low income Middle Income
About 60% of LDCs figure in the bottom two quintiles of infrastructure rankings for all developing countries
Source: Authors calculation based on World Bank, LPI Indicators
Passing from the fourth quintile to the third quintile raise trade by 35%
Quantifying “potential demand”… adding it up
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
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
Potential demand for aid for trade
GuyanaSierra Leone
Central AfricanEast Timor
MalawiSamoa
SomaliaBenin
Congo DRJamaica
UzbekistanNamibia
TajikistanEritreaNepal
FijiMicronesia
MadagascarNiger
Papua New GuineaRwanda
ComorosSyrian Arab Republic
YemenSolomon Is
Burkina FasoEthiopia
GuineaMali
ParaguayBurundi
Sao Tome and PrincipeSaint Vincent and the
KyrgyzstanMauritius
SudanUgandaZambiaGambia
HaitiLaos
VanuatuColombia
GabonMoldovaTanzaniaLesothoCongo
Source: Authors calculation based on data from ITC and World Bank.
Countries in the bottom two quintiles
Does potential demand match supply?
Aid for trade (GDP) is determined by potential demand, p.c. income, and aid effectiveness…
Source: Authors calculation based on 2006 cross section regression
Potential demand for aid for trade
Supply of aid for trade /GDP
AGO
ARM
AZE
BDI
BEN
BFA
BGD
BIH
BOL
BTN
CAF
CIV
CMR
COGCOMCPV
DJI
DMA
ERI
ETH
GEO
GHA
GIN
GMB
GNB
GNQ
GRD
GUY
HND
HTI
IND
KEN
KGZKHM
KIR
LAO
LBR
LCA
LKA
LSO
MDA
MDG
MDV
MLI
MNG
MOZ
MRT
MWI
NERNGA
NIC
NPL
PAK
PNG
RWA
SDN
SEN
SLB
SLE
STP
TCDTGO
TJK
TMP
TON
TZA
UGA
UZB
VNM
VUT
YEM
ZAR
ZMBGood news: positive correlation
Other news: many countries underserved
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 – Infrastructure -- Logistics Performance Index (used here), the Limao-
Venables index, and the communication index – Trade-related institutions -- customs component of the LPI and the time
to export index of the Doing Business. – 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.
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.
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
Aid for Trade: Ensuring That the Most Needy Get It
This presentation is based on Elisa Gamberoni and Richard Newfarmer “Aid for Trade: Matching Potential Demand with Supply” World Bank Policy Research Paper 4991 and Elisa Gamberoni and Richard Newfarmer, “Aid for Trade: Do the Most Needy Get It?” draft 2011
Richard Newfarmer International Growth Centre
Paris, March 28, 2011