Research

Are African exports that weak ? A trade in value-added approach

African countries are known to export less than any other group of countries in the world. Many studies have advanced that the main reason for this is the high level of transport costs due to the poor quality of transport infrastructures on the African continent. We first show that, depending on the estimator used, African countries as an aggregate do not necessarily trade a lower volume of gross exports than other countries on average, even though they clearly underperform in exports of final goods. This underperformance, reflected by the greater impact of bilateral trade costs such as distance on African exports of final goods compared to other countries, is not observed for African intermediate goods flows. Second, we formulate a model for trade in value-added by adapting the standard gravity equation to take into account the structure of value-added exports. The proposed model points up the importance of the indirect trade costs of third countries via which a country of origin’s value-added transits before reaching its final destination. When we control for these indirect trade costs in the value-added trade estimation, the additional impact of the bilateral trade costs observed for African countries’ final goods exports is six times lower.

Working papers

Trade in value-added and the welfare gains of international fragmentation 

It is notorious in the literature that international fragmentation substantially increases the welfare gains of trade which are, as well known, inversely proportional to the shares of domestic trade in intermediates and final goods. Most calculations, however, implicitly assume that a shutdown of trade in intermediate goods would leave the share of domestic trade in final goods fixed, which overestimates the results. The varieties of goods available in a country would likely change if local firms lost access to intermediate inputs required to produce their final goods. The share of domestic trade in final goods should, therefore, vary following a shutdown of international fragmentation. A simple mechanism describes how this share changes following the shock. The shutdown would create a substitution between intermediate goods and final goods imports. The loss of access to foreign intermediate inputs by a country’s local producers would be compensated by an increase in final goods imports using these inputs, which would attenuate the initial impact of the shutdown. Using this mechanism, we calculate that international fragmentation represents on average approximately 20 % of the total welfare gains of trade, while it would represent at least 50 % without this adjustment.

Import processing zones, tools for regional integration ?  The case of the free trade zone of Manaus (Brazil)

We examine in this article whether the challenging goal of connecting the isolated Amazonian region of Brazil to the distant economic centre of the country has been accomplished despite its low-quality transport infrastructures and whether the creation of a Free Trade Zone (FTZ) in the region could have played a role in the process. Using a gravity model to assess each Brazilian state's trade performance and level of trade costs, we found that the two entities representing the state of Amazonas which hosts the FTZ were among the most effective intra-national exporters in Brazil in 2008 despite facing the highest level of trade costs in the country. These counter-intuitive findings indicate a potential impact of the FTZ.

Work in progress