An empirical assessment of the trade facilitation initiative: econometric evidence and global economic effects

Abstract This paper attempts to model trade facilitation in a multi-regional and multi-sectoral computable general equilibrium (CGE) model, MIRAGE. It follows Decreux and Fontagné (2009) in modeling trade facilitation and in assuming that administrative barriers are an iceberg cost. I extend their model using more comprehensive measures of ad-valorem equivalents (AVEs) of red tape costs, which are computed from a gravity model, and are introduced in the CGE model. The novelty in using those AVEs is that they take into account the effects of bureaucracy, internet coverage, corruption, and geographical barriers on the time to trade. The paper has four major findings. Gains derived from trade facilitation are more significant for developing economies (especially for the Middle East and North Africa region and Sub-Saharan countries) than for developed ones, whether in terms of welfare gain (either in the short or long run) or increase in trade. Second, long-run welfare effects of trade facilitation are much higher than in the short run. Third, trade facilitation helps boost both intra-regional trade and inter-regional trade. Fourth and most interestingly, it also helps improve export diversification, leading to an expansion in those sectors that are more sensitive to time, such as food, textiles, and electronics.