Key message 3 – Reducing trade costs could spread the gains from trade to remote areas and help tackle regional inequality.

 

Internal trade barriers not only hinder trade and dampen economic growth, they also distort the benefits of globalisation and increased trade. As tariffs fall and international transportation improves, the benefits from the consequent price changes may not accrue to all consumers equally. Remote locations are generally harmed more by the burdens of intra-national trade costs than areas close to borders or ports. This limits the benefits of globalisation in remote villages or rural settlements (World Trade Organization, 2004). High intra-national trade affects consumers in remote areas in two key ways. Firstly, with a high price of transportation to remote areas, consumers in remote locations may be less likely to buy foreign goods. This could be either because the goods are too costly or because they are not available in the first place (Atkin and Donaldson, 2015).

High intra-national trade affects consumers in remote areas in two key ways. Firstly, with a high price of transportation to remote areas, consumers in remote locations may be less likely to buy foreign goods. This could be either because the goods are too costly or because they are not available in the first place (Atkin and Donaldson, 2015).

Secondly, Atkin and Donaldson (2015) find that even when foreign goods are available in remote areas, consumers in those places benefit less from a reduction in the international price of imports. Instead, the reduction in price benefits the producer or intermediaries more than the consumers. This is because the high cost of transporting goods within a country appears to make retail and distribution activity less competitive in remote areas relative to urban areas. As such, if the origin price of an imported good falls, due to lower tariffs following globalisation for example, the price of that good does not fall as much in rural locations.

These findings suggest that increased globalisation exacerbates regional inequalities. As the cost of international trading falls, places closer to borders and ports benefit more than those in remote locations. Atkin and Donaldson (2015) conclude that reducing the cost of transporting goods could reduce regional inequality and specifically benefit families in rural settlements or remote villages.

Photo: Getty Images | Ariadne Van Zandbergen