1 Trade Facilitation & Expanding the Benefits of Trade to SMEs Yue Li John S. Wilson The World Bank Beijing, China May 20, 2009

2 Roadmap Introduction & Preview of Results Introduction & Preview of Results Trade Facilitation and SMEs’ Exports Trade Facilitation and SMEs’ Exports PerceptionPerception ImpactImpact Concluding Remarks Concluding Remarks

World Exports Contract Sharply 3 Source: World Bank, DEC Prospects Group.

4 Why Trade Facilitation Trade costs –serious short and long term constraints Trade costs –serious short and long term constraints Tariffs –relatively low, multilateral Tariffs –relatively low, multilateral Trade facilitation –unilateral, regional Trade facilitation –unilateral, regional Recovery requires addressing these barriers now Recovery requires addressing these barriers now TF can involve substantial resource costs. Countries need to identify priorities. TF can involve substantial resource costs. Countries need to identify priorities.

5 Why Firm-level Study Firms are the actual players in export activities. Important to understand their behavior and what affect their companies. Firms are the actual players in export activities. Important to understand their behavior and what affect their companies. Existing empirical studies largely focus on aggregate impacts of reform due to data availability. Existing empirical studies largely focus on aggregate impacts of reform due to data availability. Using the World Bank Enterprises Surveys, the study extends the scope of empirical literature to firm dimension with a focus on SMEs in Asia countries Using the World Bank Enterprises Surveys, the study extends the scope of empirical literature to firm dimension with a focus on SMEs in Asia countries

6 Preview of Results Improvement in TF indicators: increase the probability that SMEs will become exporter -- as well as their export propensity Improvement in TF indicators: increase the probability that SMEs will become exporter -- as well as their export propensity Policy predictability & IT services: the most effective Policy predictability & IT services: the most effective SMEs are less responsive to improvement in transportation infrastructure than large enterprises while increasing policy predictability matters more to SMEs SMEs are less responsive to improvement in transportation infrastructure than large enterprises while increasing policy predictability matters more to SMEs

7 Trade Facilitation & SMEs’ Exports Using Firm Level Data from Enterprise Surveys Using Firm Level Data from Enterprise Surveys 10 East and Southeast Asian countries and 4 South Asian countries10 East and Southeast Asian countries and 4 South Asian countries 14 sectors, sectors, firm observations firm observations SMEs 60%, exporters 36%SMEs 60%, exporters 36% Examine Trade Facilitation Indicators and Firms Examine Trade Facilitation Indicators and Firms Probability of Exporting (Probit Model)Probability of Exporting (Probit Model) Exports Propensity (Exports/Sales, Tobit Model)Exports Propensity (Exports/Sales, Tobit Model)

8 Exporters are Larger (Sales) Data Source: Enterprise Survey, the World Bank

9 Exporters are More Productive (Sales/Labor) Data Source: Enterprise Survey, the World Bank

10 Measuring Facilitation Narrow sense Narrow sense Logistics of moving goods through portsLogistics of moving goods through ports Efficient custom rules for cross-border tradeEfficient custom rules for cross-border trade Broader sense Broader sense Environment in which trade transaction take placeEnvironment in which trade transaction take place transparency of regulation, harmonization of standards, IT services and transportation infrastructure.transparency of regulation, harmonization of standards, IT services and transportation infrastructure.

11 Measuring Facilitation Enterprise Surveys Narrow sense Narrow sense Days to clear exports from port of exitDays to clear exports from port of exit Days to clear imports from port of entryDays to clear imports from port of entry Customs & trade regulation as an obstacle to businessCustoms & trade regulation as an obstacle to business

12 Measuring Facilitation Enterprise Surveys Transparency Transparency Corruption as an obstacle to businessCorruption as an obstacle to business Economic & regulatory policy uncertainty as an obstacle to businessEconomic & regulatory policy uncertainty as an obstacle to business Confidence in legal protectionConfidence in legal protection Infrastructure Infrastructure Transportation as an obstacle to businessTransportation as an obstacle to business Telecommunication as an obstacle to businessTelecommunication as an obstacle to business Affordability & quality of IT servicesAffordability & quality of IT services

13 SMEs’ Perception (% firms, obstacles to business) Data Source: Enterprise Survey, the World Bank

14 SMEs & Customs Regulation Data Source: Enterprise Survey, the World Bank

15 SMEs & Policy Uncertainty Data Source: Enterprise Survey, the World Bank

16 Trade Facilitation & SMEs’ Exports Due to higher costs and risks, only the most productive firms exports. (Melitz 2003) TF promotes the entry of SMEs into export markets—Higher Probability of Exporting TF promotes the entry of SMEs into export markets—Higher Probability of Exporting More firms in direct contact with the global market More firms in direct contact with the global market Lower trade costs increase firms’ propensity to export and stimulate the growth of exporters. Lower trade costs increase firms’ propensity to export and stimulate the growth of exporters. Reallocation of resources to high-productivity firms Reallocation of resources to high-productivity firms

Impact: Probability of Exporting 17

Impact: Export Propensity 18

Concluding Remarks Trade facilitation can expand the benefits of trade to SMEs through Trade facilitation can expand the benefits of trade to SMEs through raising the probability of entering foreign marketsraising the probability of entering foreign markets increasing export propensity of existing exportersincreasing export propensity of existing exporters 19

Concluding Remarks More substantial investments in reform – in particular in the “soft” part of trade facilitation More substantial investments in reform – in particular in the “soft” part of trade facilitation Reducing uncertainty, increasing transparencyReducing uncertainty, increasing transparency Improving IT services infrastructureImproving IT services infrastructure 20

21 Thank You Yue Li John S. Wilson The World Bank The World Bank