Sept 28, 2021 Global Indicators Briefs No. 3 The Importance of Facilitating Imports for International Trade Flows: Evidence from the Auto Industry Viktoriya Ereshchenko, Varun Eknath, and Inés Zabalbeitia Múgica I mports are becoming more important than ever in world trade in the face of rapid globalization and the spread of global supply chains. One way to boost imports is through e cient regulations and practices. While the impact of regulatory restrictions is well established for exports, their e ect on imports has been studied to a lesser extent across countries. is Brief aims to help ll that gap. Focusing on the auto industry, it analyzes the relationship between e cient import procedures and international trade ows in 190 economies. An analysis of the data at the global level suggests that economies where importing auto parts is relatively fast and inexpensive tend to have not only higher imports of auto parts (in terms of volume and value) and a higher ratio of imports of auto parts to total GDP, but also a higher ratio of imports of overall manufactured products to total GDP. Similarly, economies with e cient procedures when importing auto parts tend to have a greater share of automobile exports of total GDP. e Brief does not provide a causal interpretation and more analysis will be needed to understand the direction of the relationships. But given the strong positive association between the e ciency of import procedures and international trade, streamlining import regulations appears to be an important aspect for policy makers to focus on in formulating trade policy. E cient import regulations and practices can boost trade. import procedures and international trade ows. e Brief, Full implementation of the World Trade Organization (WTO) however, does not provide a causal interpretation. More analysis Trade Facilitation Agreement, which aims at cutting red tape will be needed to understand the direction of the relationship. and simplifying export and import processes, could increase world trade by 0.6 percent, the Organisation for Economic e Brief focuses on evidence from the auto industry, Co-operation and Development (OECD) estimates (OECD which is often highlighted as an example of a global 2018). While exports have typically been highlighted in the manufacturing industry (Sturgeon, Biesebroeck, and Gere literature on international trade regulations, and are often 2007). While export products vary across economies, countries considered to be a crucial driver of a country’s economic tend to import similar products as a result of intra-industry development (see, for example, Crivelli and Groeschl 2016; trade and well-developed supply chains (World Bank 2015). Fontagné et al. 2015; Crozet, Milet, and Mirza 2016), imports are no less important. As David Ricardo noted centuries ago in Why Are Efficient Import Regulations and his theory of competitive advantage, imports have played a key Practices Important? role in allowing countries to fully exploit their comparative Imports are becoming ever more important in world trade advantage and focus their e orts on the sectors where in the face of rapid globalization and the spread of global supply production is the most e cient and competitive. chains. Readily available imported products allow domestic While the impact of regulatory restrictions is well enterprises to have access to a wide range of goods of better established for exports (see, for example, Crivelli and Groeschl quality at a competitive price. Moreover, larger volumes, more 2016), their e ect on imports has been studied to a lesser extent. variety, and higher quality of imported products are associated Several studies analyze the relationship between import with higher volumes and quality of exports, increased economic regulations and the value of imports for speci c countries growth rates, and more diversi cation of export markets (Pierola et al. 2018; Fernandes, Hillberry, and Mendoza (Pierola et al. 2018). Alcantara 2015; Soloaga, Wilson, and Mejia 2006). However, Imports can also be an important channel for technology there is less cross-country evidence on such relationships. transfer to the importing country (Almeida and Fernandes Burdensome trade procedures are associated with increased time 2008). In addition, technology transfers can lead to the and cost to import, as measured by the World Bank’s annual di usion of new technologies across di erent industries in the reports on Doing Business. e objective of this Global importing country (technological spillovers) (Keller 2002). Indicators Brief is to analyze the relationship between e cient Overall, imports of technology and associated gains in Affiliations: World Bank, Global Indicators Group, Development Economics. For correspondence: veknath@worldbank.org; vereshchenko@worldbank.org; izabalbeitiamugi@worldbank.org. Acknowledgements: We are grateful to Ana Margarida Fernandes, David C. Francis, William John Gain, Ankur Huria, Norman V. Loayza, Valeria Perotti and Rita Ramalho for helpful comments. Nancy Morrison provided excellent editorial assistance. Objective and disclaimer: Global Indicators Briefs synthesize existing research and data to shed light on a useful and interesting question for policy debate. Global Indicators Briefs carry the names of the authors and should be cited accordingly. The findings, interpretations, and conclusions are entirely those of the authors. They do not necessarily represent the views of the World Bank Group, its Executive Directors, or the governments they represent. DECIG – Global Indicators Briefs No. 3 productivity are considered to be an important channel by be the case when governments introduce NTMs to address which international trade leads to economic growth (Wacziarg amarket failure but do not remove them after the problem is and Welch 2008). resolved. E cient import regulations are crucial to ensure the NTMs are a major obstacle for small and medium smooth functioning of the international trade system, as enterprises when trading across borders (WTO 2016), documented by a number of studies around the world. e restricting imports and reducing the probability of exporting implementation of advanced customs clearance procedures is (Crivelli and Groeschl 2016; Devadason, Chandran, and associated with a greater total value and diversi cation of Kalirajan 2018; El-Enaby, Hendy, and Zaki 2016). NTMs imports in Peru (Pierola et al. 2018). Evidence from Albania suggests that a reduction in customs processing time, linked to may generate additional costs for producers and traders, which the introduction of a risk-management inspection system, leads can increase prices (UNESCAP 2019). For instance, the to increased import values (Fernandes, Hillberry, and Mendoza introduction of NTMs in the apparel sector increased prices by Alcantara 2015). Another study on the impact of trade 66 percent in the European Union, and the introduction of facilitation measures in Mexico shows that import reforms NTMs on vegetable oils and fats in South Africa increased could generate an increase of about 11 percent in the value of prices by 90 percent (Andriamananjara et al. 2004). In turn, imports, with the largest gains coming from improved e ciency NTMs can increase the cost of living. A study on 65 countries of ports (Soloaga, Wilson, and Mejia 2006). found that the introduction of NTMs raised trade unit values, with prices rising an average of about 8 percent in half the e Increased Importance of Non-Tari Measures as products assessed (Cadot and Gourdon 2016). Further, an Barriers to Imports analysis of Malaysia’s NTMs on food imports from neighboring countries in the Association of Southest Asian Nations con rms Despite their importance, import ows continue to face that technical standards restrict imports (Devadason, hurdles. As import tari levels have been falling, the role of Chandran, and Kalirajan 2018). non-tari measures (NTMs) has been growing (EDB 2015). NTMs today have a bigger in uence on trade than tari s, and Non-tari barriers (NTBs) are a subset of NTMs that have their variety makes them much harder to measure (UNCTAD a protectionist or discriminatory intent that restrict trade and World Bank 2018). Governments impose NTMs to meet (International Trade Center). NTBs involve additional an array of public policy goals such as addressing public health compliance measures that may discourage exporters from externalities, improving consumer protection, or enhancing entering the market of the country imposing such standards, national security (Ronen 2017). While an NTM may be the therefore curtailing imports. NTBs include technical barriers to best solution to achieve a legitimate public policy goal, the same trade; preshipment and conformity inspections; nonautomatic measure may also be used for protectionist purposes or may lead licensing; quotas and other quantitative controls; and price to unnecessary trade costs (WTO 2012). For instance, this can control. Figure 1 The Relationship between the Efficiency of Import Procedures and Trade Flows Economies with more e cient import procedures have greater values and volume of imports. a. Value of trade b. Volume of trade DEU 20 Logarithm of volume of HS8708 imports (2018) 15 MEX CHN FRA ESP Logarithm of HS8708 value imports (2018) GBR CZE y = 0.0342x + 7.6006 RUS SVK POL y = 0.0464x + 8.2866 USA JPN SWE BEL R² = 0.1454 DEU R² = 0.0949 ARE BRA THA NLD TUR MEX CHN AUT ROM CANGBR ESP FRA ARG IDN IND MYS PRT CZE SVK KOR RUS JPN ITA POL BEL SWE FIN BRA THA ROM IND NLD AUT TUR HUN PHL ZAF TWN SVN MAR 15 ARG IDN ARE AUS MYS PRT KOR DZA UZB SAU SRB VNM SGP FIN EGY NGA IRNCOL DNK KAZ ZAF TWN SVN MMR UKR CHE NOR DZA UZB SAU MAR CHL HKG CHE DNK NOR CHL LUX LTU EGY IRNCOL SRB SYR LBN GHA PER ECU IRL GRC PHL BLR GRC SDN KEN TUN JOR ISR NZL HKG AFG IRQ PAK UKR IRL NZL OMN LTU AFG LVA BGR LBNKWT PER TUNECU ISR PAN KAZ BGR LVA LUX HRV 10 KWT KGZ BOL URY GTM BIH HRV BGD MMR QAT URY LBY LKA BHRGTM EST ZAR TZA AGO SEN ETH UGA MRT QAT HND CRI PRY AZE SLV SDN KEN ZMB KHM JOR PRY CRI DOM MKD BIH NAM TJK ZMB MNG BHR NPL NGA SYR AGO PNG HND BOL AZE NPLSLV CYP BWA SOM CIV GEO MKD ZARTZA ETH GHA KGZ LAO ISL MOZ MDA BFA MDG RWA ARM BWA MDA CMR TTO ZWE CIV JAM MNG NIC GEO MLT ZWEDJI JAM NIC CYP 10 TGO GABGIN SEN SOM BHS DJI TJK BFA UGA MLI MUS ALB ARM COG GNQ LBR MRT MDG BRB GUY HTI RWA FJI MNE BRN SWZ LSO SSD GUY SURMUS ISLLSO CAF SUR MWI WBG GMB MLT SWZ TCD SLB BLZ SYC BEN SSD BDI SLE NER BEN TMP BTN BDI BHS BRB SLB BRN SYC MWI MNE MDV CPV ATG VCT FSM NER VUT LCA DMA SLE BLZ WBG WSMGRDCOM KNA CPV BTN CAF VCT GMB MHL ATG TON MDV 5 5 0 20 40 60 80 100 0 20 40 60 80 100 Trading across borders-import components score (0-100) Trading across borders-import components score (0-100) Source: Doing Business 2020; ITC Trade Maps 2018. Note: The sample includes 180 observations for panel a and 135 observations for panel b. The figures use country codes from Doing Business. Further regressions for panel a and panel b highlight that the relationships are significant at the 1 percent level and remain significant after controlling for income level, population, and tariff rates for HS8708 (auto parts and other vehicle parts). A further check on robustness added controls on natural resource endowment and share of value added of manufacturing sector of total GDP; the results remain significant at the 1 percent level. After adding the respective controls, the sample reduces to 106 observations for both panels. Data for the following are from the World Development Indicators database (2018): (1) gross national income (GNI) per capita, a proxy for income level; (2) exports of fuel as a share of merchandize exports (2018), a proxy of natural resources endowment; (3) value added of manufacturing sector as a share of GDP (2018); and (4) on population size (2018). As a proxy for tariff levels, data on the tariff level from the HS of Tariffs for HS 8708 (auto parts and other vehicle parts) are taken from ITC Trade Maps from 2018. 2 DECIG – Global Indicators Briefs No. 3 How Are Efficient Import Regulations and In the Slovak Republic, which ranks rst on the ease of Practices Related to Trade? trading across borders in 2018/19, imports of auto parts represent 10 percent of total GDP. e Slovak Republic e Trading across Borders import data serve as a proxy for imports auto parts mostly from Germany, and no border the e ciency of import regulations and practices in an control nor customs requirements are applicable because both economy. us, this measure is used as the main independent countries belong to the European Union. On the other hand, variable for the analysis.1 Data from the International Trade economies with cumbersome import regulations, such as Center (ITC) are used to identify the main dependent variables. Cameroon and Tanzania, have smaller ratios of imports of auto Speci cally, the Brief relies on the value and volume of imports parts to total GDP. Cameroon and Tanzania require of auto parts as reported by the relevant category in the conformity inspections at origin when importing auto parts, Harmonized Schedule (HS) of Tari s, (HS8708). Further, the which adds to the time and cost to trade. value of imports of auto parts and the value of exported vehicles (HS87) are used to construct variables on the share of imports e recent fragmentation of production processes has been of auto parts and the share of exports of vehicles of total GDP. accompanied by a rise in the trade of intermediate goods. While Not surprisingly, an analysis of the data at the global level world exports increased almost six-fold from 1990 to 2018 suggests that economies with more e cient import procedures (from US$4.3 trillion to US$25.129), GDP has grown more have higher levels of imports, in terms of both volume ( gure slowly, by nearly four-fold, from US$22.656 trillion to 1, panel a) and value ( gure 1, panel b). US$85.91 trillion (World Bank World Development Indicators Furthermore, economies with better performance on the database). e higher growth of exports can be explained by the import component of the Trading across Borders indicator tend increasing trade in intermediate goods that are exported several to have a higher ratio of imports of auto parts to total GDP. In times before being turned into a nal product (Nordås 2003). particular, economies in which it is relatively fast and inexpensive to import auto parts tend to import more auto parts Countries’ exports increasingly embody value added that is ( gure 2 and table 1). e relationship is notably signi cant previously imported through global value chains. us, import when it comes to time and cost to import (time at a 1 percent policies have become an important determinant for further level and cost at a 5 percent level). More e cient import exports, as noted in the 2020 World Development Report (World procedures are also associated with higher ratio of imports of Bank 2020). Factors such as import tari s on intermediate manufactured products to total GDP in general, even after goods and raw materials, are important for exports (Fernandes, taking several relevant controls into account. While this Kee, and Winkler 2020; Ali and Dadush 2011). With the illustrates an association between e cient import procedures decline in tari barriers, the signi cance of non-tari measures and imports, further research is needed to understand the on imports, such as border and documentary requirements, is direction of such a relationship. even more pronounced for the export of nal products. Economies where importing auto parts is relatively fast and inexpensive tend to have a greater Figure 2 ratio of imports of auto parts to GDP. -2 Logarithm of HS8708 imports in total share of GDP (2018) SVK y = 0.0205x - 7.4118 CZE HUN R² = 0.2054 MEX SVN -4 AFG UZB ROM THA SRB POL BEL PRT AUT CAN SWE ESP DEU MAR VNM TUN MKD TUR BLR FIN LVA NLD DJI ARE MYS LTU NAM GBR FRA EST ARG DZA SOM SLB KGZ RUS KHM FSM SGPLSO BIH TGO LBN ZAF SYC OMN SWZ MDA ITA BGR EGY LBR IDN DMA BHR BLZ PAN USA BWA LUXHRV CAF PNGZMB GUYHND FJI CHL VCT BRAUKRMOZSLV TJK LBY MHL DNK -6 SDN GIN BRB MRT MMR VUT URY COL BOL JOR MNG PRY GEO ECU SURNIC LAO MNE NPL CYP CHNHKG KOR MLT GRC JAM BFA NOR COG IRQ BHS KWT PHL WSM TMP ATG RWAGTM MUS JPN IND NZL ISL BTNCHEKAZ ARM ALB TTO PER HTI CPV LKA CRI AUSAZE BDI GAB ZWE COM SAU MWI KNA ZAR SLE SENKEN MLI PAK GRD MDG BRN LCA TON DOM IRL CMR TZA GNQ ISR CIV UGA GHA QAT ETH AGO NER TCD BGD MDV BEN GMB WBG -8 NGA -10 0 10 20 30 40 50 60 70 80 90 100 Trading across borders-import components score (0-100) Source: Doing Business 2020; World Development Indicators database; ITC Trade Maps 2018. Note: The sample includes 176 observations. The figure uses country codes from Doing Business. A futher regression highlights that the relationship is significant at the 1 percent level and remains significant after controlling for income level, population, and tariff rates for HS8708 (auto parts and other vehicle parts). A further check on robustness added controls on natural resource endowment and share of value added of manufacturing sector of total GDP; the results remain significant at the 1 percent level. After adding the respective controls, the sample reduces to 106 observations. 3 DECIG – Global Indicators Briefs No. 3 Table 1 The Relationship between the Efficiency of Import Procedures and Imports of Auto Parts Ratio HS8708 imports Ratio HS8708 imports Ratio HS8708 imports total GDP total GDP total GDP Trading Across Borders Import Score 0.2935*** 0.2639*** 0.1814** (2019) (0.005) (0.009) (0.014) Log GNIpc (2018) 0.0161 0.0303 (0.645) (0.427) Tari rates for HS8708 (2018) -0.0060 -0.0060 (0.240) (0.241) Share manufacturing total GDP (2018) 0.0367** (0.028) Share Fuel merchandise exports (2018) -0.0042* (0.068) Constant -3.94e-09 (1.0) -0.1086 -0.6367 (0.753) (0.109) Number of observations 106 106 106 Adjusted R-sq. 0.077 0.062 0.109 p-values in parenthesis * p<0.1, ** p<0.05, *** p<0.01 Source: Doing Business 2020; World Development Indicators database; ITC Trade Maps 2018. Note: The sample includes 106 observations. Using standardized variables for the “ratio of imports of HS8708 to GDP” and “Trading Across Borders Import Score” variables in the model, the regression analysis shows that the relationship is significant at the 1 percent level and remains significant after controlling for income level and tariff rates for HS8708 (auto parts and other vehicle parts). A further check on robustness added controls on natural resource endowment and share of value added of manufacturing sector of total GDP; the results remain significant at the 5 percent level. A cross-country analysis suggests that economies with for imports of auto parts and has a smaller share of exports of better regulations and practices when importing auto parts tend vehicles of GDP. Incoming auto parts are inspected by several to have higher shares of exports of vehicles (HS87) of total GDP control agencies, including the Algerian Competition and Price (table 2). While this relationship is signi cant across income Department, the Ministry of Commerce, and Customs. Over groups, the association is more pronounced for high-income the past few years, Algeria has been trying to streamline import and upper-middle income economies ( gure 3). is analysis control. In 2017, the government introduced “mixed brigades” demonstrates an association between e cient import processes with o cers from the di erent agencies to conduct inspections and exports, although further research is needed to establish in a coordinated manner. causality. Within the group of low-income and lower-middle-income Among the group of upper-middle and high-income economies, Morocco’s e cient practices when importing auto economies, the Czech Republic is one of the best performers on parts are associated with a large share of exports of vehicles of the ease of trading across borders and one of the countries with total GDP. For instance, according to the Trading across the highest share of exports of vehicles of total GDP (0.016 Borders data, port handling is relatively fast and inexpensive at percent). Likewise, Canada has e cient import regulations, and Morocco’s gate to (and from) the European Union, is also one of the largest exporters of vehicles globally. Canada Tanger-Med port. While technical inspection by the Ministry imports auto parts mostly from the United States. e United of Commerce and Industry is required when importing auto States and Canada are part of a free trade area and physical or parts into Morocco, physical inspections by Customs are rare. scanning inspections are rare. Customs procedures are followed On the other hand, Ethiopia has a small share of exports of only on the Canadian side of the border, where the Canada vehicles of total GDP. While many factors a ect a country’s Border Services Agency accepts either a commercial invoice or a ability to export vehicles, there is room for improvement in Canada Customs Invoice for clearance purposes. Ethiopia when it comes to the ease of importing auto parts. In Among upper-middle-income economies, ailand’s addition to regular commercial and transport documents, e cient practices in importing auto parts go hand in hand with Ethiopian importers must obtain a permit from a commercial a signi cant share of exports of vehicles of total GDP (0.006 bank, an import license from the Ministry of Trade, and an percent). ailand’s traders prepare and submit import insurance certi cate. Imported auto parts are physically documentation electronically and free of charge. On the other inspected by Customs in more than 20 percent of cases and it hand, Algeria provides a relatively more di cult environment takes an average of 72 hours to complete clearance. 4 DECIG – Global Indicators Briefs No. 3 Figure 3 The Relationship between Efficiency of Import Procedures for Auto Parts and Exports of Vehicles Economies with more e cient procedures when importing auto parts tend to have a greater share of exports of vehicles of total GDP. a. Low- and lower-middle-income economies b. Upper-middle and high-income economies -10 -6 MAR y = 0.0267x - 16.397 y = 0.0896x - 20.238 Logarithm of share of HS87 exports in total Logarithm of share of HS87 exports in total KHM TUN R² = 0.3691 R² = 0.0718 VNM IDN -8 -12 CAF SLE NER KGZ IND SVK CZE TGO HUN PHL MEX SVN BEL SOM TJK HND FSM MDA SWZ THA ROM DEU UGA RWA -10 KOR TUR CAN POL BLR AUT SWE PRT ESP LBR KEN UZB ZMB DJI UKR ARE ZAF JPN MKD EST LTU NLD -14 SEN CIV BFA STP NIC BTN GEO-10.58797741 SRB, LVA ITA FIN FRA GBR LUX TZA EGY MWI MOZ LSO SLV ARG BGR HRV BDI NPL BHR SGP BIH GIN BEN DNK NAM GDP (2018) GDP (2018) COG AFG BGD MMR HTI -12 KWT BRA CHN MYSUSA MLI MNG LAO LBN HKG CHE SLB PAK URY JORMHL CHL MNE BWA -16 ZWE MDG QAT GRDCOL SAUATGRUSVCT OMN NOR ARM CMR ZAR AGO ALB KIR GNB IRL GHA PNG VUT -14 DMA LKA BLZ AUS FJI GTM PAN CYP GRC TON NZL GMB TMP BHS GAB BRB PER SYCISR MLT ETH GNQ TTO LCAECU KAZ -18 SDN WSM PLW GUY BRN CRI DOM ISL MUS -16 SUR AZE JAM PRY WBG KNA DZA -20 COM -18 LBY TCD IRQ NGA -22 -20 0 20 40 60 80 100 20 40 60 80 100 - (0-100) Trading across borders- import components score Trading across borders- import components score (0-100) Source: Doing Business 2020; World Development Indicators database; ITC Trade Maps 2018. Note: The initial sample of observations includes 72 low-income and lower-middle income economies, and 106 upper-middle and high-income economies. The figures use country codes from Doing Business. Results of further regression analysis using a standardized variable for the “share of HS87 exports of total GDP” and “Trading Across Borders Import Score,” that the positive relationship is significant at the 10 percent level for panel a and at the 1 percent level for panel b. After controlling for income level, import tariff rates for HS8708 (auto parts and other vehicle parts), and the value added of manufacturing sector of total GDP, the results remain significant at the 10 percent and 1 percent level, respectively. After adding the controls, the sample reduces to 51 observations for panel a and 95 observations for panel b. HS87 = Harmonized Schedule of Tariffs for motor vehicles. Relationship between Share of Exports of Vehicles in GDP and Efficiency of Trade Procedures when Table 2 Importing Auto Parts Share HS87 exports Share HS87 exports Share HS87 exports total GDP total GDP total GDP Trading Across Borders Import Score 0.3745*** 0.3090*** 0.2078*** (2019) (0.000) (0.002) (0.007) Log GNIpc (2018) 0.0509 0.0655 (0.252) (0.167) Tari rates for HS8708 (2018) -0.0114 -0.0135** (0.111) (0.040) Share manufacturing total GDP (2018) 0.0431 (0.017) Share Fuel merchandise exports (2018) -0.0056 (0.042) Constant -0.001(0.991) -0.3956 -0.9771** (0.352) (0.041) Number of observations 105 105 105 Adjusted R-sq. 0.132 0.127 0.204 p-values in parenthesis * p<0.1, ** p<0.05, *** p<0.01 Source: Doing Business 2020; World Development Indicators database; ITC Trade Maps 2018. Note: Using a standardized variable for the “share of export of HS87 of total GDP” and “Trading across Borders Import Score” variables in the model, the results show a positive relationship significant at the 1 percent level, and remains so after controlling for income, share of fuel in merchandize exports, import tariffs on HS8708, and value added of manufacturing sector of total GDP. HS87 = Harmonized Schedule of Tariffs for motor vehicles.; HS8708 = Harmonized Schedule of Tariffs for auto parts and other vehicle parts. 5 DECIG – Global Indicators Briefs No. 3 e Trading across Borders data can be used as a proxy Conclusion not only of the auto industry, but also of the overall e ciency of import processes in an economy. Countries with burdensome e importance of imports in terms of economic development has been somewhat overshadowed by the research practices on imports of auto parts tend to apply same onerous about exports. While this Brief illustrates an association procedures to imports in other industries. For example, e between e cient import procedures and trade ows, further Bahamas requires a license for importing from the United research is needed to understand the direction of such Kingdom. is measure is applied to a wide range of products, arelationship. Given the strong positive association between the including but not limited to auto parts (UNCTAD, TRAINS e ciency of import procedures and international trade, database). Given the importance of global value chains, streamlining import regulations appears to be an important countries with streamlined import regulations can secure aspect for policy makers to focus on when formulating trade e cient access to inputs that can be later used for domestic policy. production and exporting. 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