The effect of trade and customs digitalization on agrifood trade: A gravity approach

Abstract

Transaction costs create inefficiencies in agricultural markets and poor trade digitalization lowers agrifood productivity of developing countries. This paper argues that trade facilitation via digitalization cuts transaction costs thereby increasing agrifood trade because it streamlines trade and customs operational procedures. Our methodology represents trade digitalization by the variables paperless trade and digitalized non-tariff measures compliance. Additionally, our empirical strategy utilizes cross-country data employing a gravity model with fixed effects and socioeconomic controls. We find a high-bar evidence that a one-standard deviation improvement in e-trade facilitation at the exporter level and in non-tariff measures digitalization at the importer level increase agrifood exports by 9.7% and 1.3%, respectively, with larger magnitudes for processed products and for Sub-Saharan African and Asian countries. Consequently, trade facilitation via customs digitalization is inevitable to avoid trade diversion in an increasingly competitive globalized world. There are opportunities for developing countries to benefit from such digitalization because the relationship is stronger between agrifood exports and e-trade facilitation at the origin, which increases the agency of countries in the Global South.