Moving Forward Faster : Trade Facilitation Reform And Mexican Competitiveness

Abstract

Improved competitiveness is at the top of the agenda for Mexico as it moves to leverage economic progress made over the past decade. This paper evaluates the impact of changes in trade facilitation measures on trade for main industrial sectors in Mexico. Four indicators of trade facilitation are used: Port Efficiency, Customs Environment, Regulatory Environment, and e-commerce use by business (as a proxy for Service Sector Infrastructure).We use the gravity model results to consider how much trade among countries might be increased under various scenarios of improved trade facilitation. Our goal is to inform directions for specific trade facilitation initiatives with the highest potential to increase trade. We examine scenarios that focus on improvements in Port Efficiency, Customs Environment, Service Sector Infrastructure, and Regulatory Environment. We follow a simulation strategy that uses a formula to design a unique program of reform for each country in the sample, and apply it to the specific case of Mexico. The formula brings below-average countries in the group half-way to the average for the entire set of countries. We focus on the below-average country on the grounds that donor attention and capacity building efforts should be extended to this group. We choose an improvement of half-way to the average because there are limited development resources and improvements take time.After simulating these improvements in trade facilitation in all four areas, we find that the total increase in trade flow in manufacturing goods is estimated to be $348.2 billion (about 7.4% of total world trade).The analysis in this paper indicates that Mexico has a large scope for trade promotion from trade facilitation reform: overall increments from domestic reforms are expected to be on the order of $31.8 billion, equivalent to 22.4% of total Mexican manufacturing exports for 2000-2003. On the imports side, these figures are $17.1 billion and 11.2%, respectively. In total exports as well as in Textiles, increases in exports result from improvements in Port Efficiency and the Regulatory Environment (i.e., the perception of corruption). In turn, exports of Transport Equipment are expected to get a greater increment from improvements in Port Efficiency, whereas exports of Food and Machinery seem to be more related to improvements in the Regulatory Environment. On the imports side, Mexican improvements in Port Efficiency appear to be the most important factor, although for imports of Transport Equipment improvements in Service Sector Infrastructure are also of relative importance.Our results show that unilateral trade facilitation reforms for the case of Mexico could generate an increment of more than 20% for exports as well as about 11% for imports. These estimates suggest that trade facilitation measures should be considered seriously in any discussion about trade policy in Mexico.

Logistics Performance Index in International Trade: Case of Central and Eastern European and Western Balkans Countries

“…Trade facilitation also includes all measures that reduce trade costs, such as customs efficiency, regulatory and institutional environment, simplicity of procedures, and use of digital technology solutions. Wilson et al (2005), as well as Mejia, Soloaga, and Wilson (2006) in their work, define trade facilitation using four dimensions: efficiency of ports, customs, regulations and the use of e-commerce, analysing and validating their statistical significance using a gravity model on a sample of 75 countries.…”

Trade Facilitation and Global Value Chains in a Post-Pandemic World

“…With regard to the empirical methodologies, two main modeling strategies have been used. First, a number of authors relied on estimating a gravity model of trade, which includes trade facilitation factors in the specification as proxies for trade easiness Otsuki 2003, 2005;Djankov, Freund, and Pham 2010;Nordas, Pinali, and Grosso 2006;Soloaga, Wilson, and Mejía 2006;Persson 2007;Martínez-Zarzoso and Márquez-Ramos 2008;Kumar and Shepherd 2019;Kim, Mariano, and Abesamis 2022;Shepherd 2022). Second, several works (Decreux and Fontagne 2006;Dennis 2006;Cheong and Turakulov 2022, among others) used computable general equilibrium models to estimate the effect of trade facilitation indices on trade flows.…”

From Trade Preferences to Trade Facilitation: Taking Stock of the Issues

“…For example, Djankov et al (2010) find that for every additional day that a product is delayed, trade is reduced by at least 1 percent. Other papers in this literature include Wilson et al (2003;, Nordås et al (2006), Soloaga et al (2006), Iwanow and Kirkpatrick (2007;, Lee and Park (2007), and Shepherd and Wilson (2009). Using less aggregated data on trade volumes, Sadikov (2007) and Martínez-Zarzoso and Márquez-Ramos (2008) have illustrated that export volumes of differentiated products are more sensitive to trade procedures than export volumes of homogeneous goods.…”