Who’s getting globalised? Intra-national trade costs and world price pass-through in South Asia and Sub-Saharan Africa
Researchers used new methodology to measure the costs that prevent consumers in remote locations of developing countries from accessing the benefits of global trade.
Estimates show the cost of transporting goods within Ethiopia or Nigeria is four to five times larger than in the US.
Consumers in remote locations see only a small part of the gains from falling international trade barriers
The reduction of trade barriers that connect the world’s economies to one another –‘globalisation’ – is widely thought to be a powerful force for igniting and sustaining inclusive growth in the world’s poorest countries. However, the trading frictions faced by many of the poorest citizens in these countries include not only the international trade costs that have fallen in recent years, but also the intra-national trade costs that separate these citizens from their nearest port.
Poor domestic infrastructure and internal barriers to trade may be preventing the forces of globalisation from taking effect. It remains an open empirical question just how integrated with the global economy are the world’s isolated, land-locked and rural poor. Further, little is known about the domestic policy initiatives that can be used to mitigate their isolation, and whether such policies will indeed engender more rapid growth for these groups.
In this research project, we developed and applied new tools designed to quantify and understand the intra-national barriers that separate IGC country consumers and producers from global markets, as well as the welfare consequences of these barriers. At the root of our approach are the price differences between the inland village price and the domestic port (or ‘world’) price.
For example, consider an Indian household residing in inland, rural Bihar. The enormous and much publicised reduction in trade barriers that India has seen over the last two decades may have had little bearing on this household if the trade policy-induced relative price changes observable at Kolkata port have not been passed through to rural Bihar. Our approach estimated the extent to which this household, and thousands like it residing in inland locations throughout South Asia and Sub-Saharan Africa, is separated from world markets.
In examining the three issues above, we were able to quantify the extent to which the world’s poorest citizens are affected by lowered trade barriers and the intra-national factors that mediate these effects. Ultimately, our research shed empirical light on just how globalised the world’s poor truly are, and the ways in which domestic policy might potentially be used to promote growth for these isolated groups.