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Australia : Time and cost to trade: How does Australia compare?

Even though we know that trade costs can have a substantial impact on export and import flows, theres still a fair amount of uncertainty about exactly how large they are and how they are changing over time. In a classic 2004 paper (pdf), James Anderson and Eric von Wincoop provided a detailed overview of previous attempts to assess their importance. Based on the findings of the literature at the time, they estimated that trade costs were quite substantial equivalent to a 170 per cent ad valorem tax for the typical developed economy.That 170 per cent broke down into international trade costs (74 per cent), comprising international transport costs (21 per cent) and border-related trade costs (44 per cent), plus local retail and wholesale distribution costs (55 per cent).

Subsequent work has found powerful links between trade costs and trade growth: in a review of international trade between 1870 and 2000, for example, David Jacks, Christopher Meissner and Dennis Novy estimated (pdf) that declines in trade costs explained more than half the pre-World War One boom in trade and about one third of the post-World War Two trade boom, and that a sharp rise in trade costs explained virtually all of the interwar trade collapse. Other work (pdf) has looked at the impact of time delays on international trade, finding that reducing trading costs can stimulate exports more than reductions in tariffs.

With this background in mind, estimates of comparative trade costs (or on the factors that influence them) are always of interest. One recently updated source of this kind of data is the World Banks new Doing Business 2017 study. In this annual report the Bank tries to provide objective measures of business regulations and their enforcement, plus the protection of property rights, along with the consequent effects on business. The report generates an overall ranking of the ease of doing business across countries, where that ranking is based on a range of indicators including ratings for starting a business, paying taxes, enforcing contracts and protecting minority investors (we draw on some of these indicators for our annual Benchmark Report).

All up, the latest Doing Business report covers 11 indicator sets and 190 economies. For our purposes, however, we are interested in just one set of indicators: trading across borders. In the case of this particular set of measures, the Bank is seeking to capture the time and cost associated with the logistical process of exporting and importing goods. The underlying data are based on a questionnaire which is administered to local freight forwarders, customs brokers, port authorities and traders more than one thousand respondents in total for this indicator in the 2017 report. The questions examine the time and cost (excluding tariffs) associated with three sets of trade procedures: documentary compliance, border compliance and domestic transport.

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Publication:Mena Report
Date:Nov 10, 2016
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