Asian growth: ADB terms trade efficiency effective than tariff reforms

Reducing logistical, institutional, and regulatory barriers to trade would have a much greater impact on Asian growth than tariff reduction.
This is according to a new ADB study on "Asia''s Long-term Growth and Integration: Reaching beyond Trade Policy Barriers." The paper is part of the Policy Brief Series of ADB''s Economics and Research Department, designed to provide concise non-technical accounts of policy issues.
The study demonstrates that in contrast with the removal of traditional tariff and non-tariff barriers, even modest progress toward improving trade efficiency would have a much greater impact on Asian growth.
It explains that international attention to trade policy has focussed on lowering border transaction costs in the past four decades.
"However, trade policies are only one element of the overall costs of trade for modern international business," the study says. "Logistical, institutional, and regulatory barriers are often more costly than tariffs."
As such, reductions in red tape and administrative fees, customs clearance efficiency and transparency, the use of technology to cut costs in transportation and communications, and better physical and institutional infrastructure, will all lead to better trade efficiency and, consequently, faster economic growth.
Simulations show that in a scenario of Asian trade liberalisation, where all tariff and tariff equivalent import and export barriers are removed, accompanied by a gradual reduction in other trade costs, every one of the 15 major economies studied would experience a real income and trade level several times higher than in a scenario of trade liberalisation alone without a reduction in other trade costs.
For instance, relative to a "business as usual" baseline scenario, the aggregate real income of Japan would increase by 0.9 percent after 20 years with pure trade liberalisation, as opposed to an 8.1 percent increase if trade liberalisation was accompanied by reductions in other trade costs.
In the same simulation, Philippine exports would be 0.9 percent higher after 20 years with pure trade liberalisation but will jump by 72.6 percent if trade liberalisation was accompanied by improved trade efficiency.
"Indeed, one important conclusion is that structural barriers to trade are a much greater constraint on growth than residual protection levels," the study says.
The study therefore recommends that policymakers should put more emphasis on infrastructure, ports, and customs efficiency, including simplification and coherence of rules and macroeconomic policy coherence to improve transparency and reduce uncertainty.
"Efforts to reduce trade costs will be critical for developing Asia to maximise growth and the benefits of regional trade integration."
The study is written by Douglas Brooks and Fan Zhai, economists at ADB''s Economics and Research Department, and David Roland-Holst, Professor of Economics at the University of California, Berkeley.-PR