Publication - Working Paper
Informal cross border trade (ICBT) – trade activities which are unrecorded in official trade statistics – is pervasive in Africa. Economic theory suggests that the presence of informal trade depends on the relative costs of trading informally and formally (Golub, 2015; Eberhard-Ruiz & Moradi, 2018). Some of the factors spurring informal trade are expensive document requirements, high and unclear taxation, long waits at border posts and unclear procedures (Little, 2010; Titeca & Kimanuka, 2012; Brenton et al., 2013). Informal trade can offer lower transaction costs, incentivising individuals to trade through this channel, some of whom might otherwise not engage in cross-border trade at all. Non-tariff barriers and tariffs are found to be associated with informal trade between Benin and its neighbours (Mitaritonna et al., 2017). This research builds upon these studies to understand whether cross-border traders switch trading routes (between informal and official routes) when trade costs change.
Specifically, this study examines the effect of the operation of One Stop Border Posts (OSBPs), a type of trade facilitation, on ICBT between Uganda and its neighbours. By combining two custom points into one single border facility, OSBPs are constructed with the aim of achieving speedier border crossings, reducing informality and corruption (TMEA 2016).
The study examines this relationship in two steps.