TRADE FACILITATION AND FIRMS EXPORTS:
THE CASE OF EGYPT
Rana Hendy and Chahir Zaki
ERF Policy Seminar
March 21, 2014
Cairo- Egypt
Motivation• Numerous studies have highlighted MENA’s weak performance
in aggregate trade and diversification (Dogruel and Tekce, 2011).
• Yet, little is known about the impact of administrative barriers on firm-level exporter behavior largely because of a lack of data.
• This paper tackles the impact of red tape barriers on firms’ exports.
Motivation
The topic of this paper is crucial in international trade for three main reasons:
1. First, trade barriers- as argued by the WTO- are highly correlated to lengthy, bureaucratic and time consuming trade procedures that do negatively affect firms’ exports.
2. Second, these barriers are significantly highly persistent and costly in developing countries such as Egypt.
3. Third, they represent a deadweight loss as they do not generate any rent or revenue.
MENA versus the Rest of the World
Red Tape Barriers vs. Tariffs
Source: Zaki (2013)
Egypt versus MENA and OECD
Trading Across Borders
Literature• Dennis and Ben Shepherd (2011) showed that a 10%
improvement in trade facilitation is associated with product diversity gains of the order of 3%- 4%.
• In Asia, Li and Wilson (2009) found that improvement in trade facilitation indicators tend to increase the probability that Small and Medium Enterprises (SMEs) will become exporter as well as their export propensity.
Literature • In Africa, Yoshino (2008) found that public infrastructure
constraints, such as customs delays, seem to have immediate impacts on regional exports in general, implying the relevance of addressing behind-the-border constraints in fostering regional integration.
• In the same line, Hoekstra (2013) found that trade facilitation can increase African firms’ probability to participate in international trade.
• Shepherd (2012) proved that licensing times do matter for the ability of firms to access imported intermediates.
What we do• We estimate a gravity model using Egyptian firm-level
customs data, for the first time, to examine the impact of these barriers on firms’ exports.
• These data are merged with administrative barriers that come from the Doing Business dataset developed by the World Bank.
• We examine this effect for both the intensive margin (the value of exports) and the extensive one (the probability of exporting a product to a new destination).
Outline Stylized Facts
Methodology
Data
Empirical Results
Policy Implications
Outline Stylized Facts
Methodology
Data
Empirical Results
Policy Implications
Proceeds of Merchandise Exports by Degree of Processing
FY06 FY07 FY08 FY09 FY100%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Others
Finished goods
Semi-finished goods
Raw Materials
Fuel, Mineral Oils & Products
Geographical Distribution of Exports
FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY100%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Others
Australia
Africa
Asia
Arab
USA
Russian Federation
Other European
EU
Exports and Number of Firms
Source: Constructed by the authors using the customs dataset.
2006 2007 2008 2009 20100.0
2.0
4.0
6.0
8.0
10.0
12.0
14.0
16.0
18.0
20.0
17,000
18,000
19,000
20,000
21,000
22,000
23,000
24,000
Sum of Export (in billion - LHS) Number of Firms (RHS)
Firms Entry and Exit
2007 2008 2009 20100
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
New Entrants Continuing Firms
Number and mean size of importers0
24
68
Ln
(Nu
mbe
r o
f F
irm
s p
er
dest.)
15 20 25 30Ln(GDP of Importer)
lnumfirm Fitted values
Egypt’s top importers (2006-2010)
2006 2007 2008 2009 2010
-10.0%
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0% CHN
JOR
CHE
NLD
LBN
TUR
FRA
SDN
ESP
ARE
LBY
IRL
SYR
SAU
ITA
USA
Firms per destination
2006 2007 2008 2009 20100
500
1000
1500
2000
2500
USAITASAUSYRIRL
New Exporters (by year)
Average Time to Import of Top Destinations
USA (2)
NLD (11)
CHE (15)
ARE (7)
ESP (10)
IRL (4)
FRA (8)
SAU (1)
ITA (3)
Egypt
TUR (6)
JOR (14)
CHN (13)
SYR (5)
LBN (12)
SDN (9)
0 10 20 30 40 50 60 70
Exports and Time to Import of Top Destinations
0 10 20 30 40 50 60 700
500
1000
1500
2000
2500
3000
3500
f(x) = − 17.224751951054 x + 1558.54940738219
Time to Import of Destination
Ex
po
rts
(th
ou
sa
nd
s)
Outline Stylized Facts
Methodology
Data
Empirical Results
Policy Implications
Methodology• We estimate a gravity model to determine the effect of red tap
barriers on Egyptian exports.
• We control for the following variables: • GDP (for Egypt and the destination)• Gravitational Variables: common language, contiguity,
distance, common colonizer.• Trade Facilitation Variables: time to import, time to export.• Policy Variables: tariffs.
Different Definitions
Outline Stylized Facts
Methodology
Data
Empirical Results
Policy Implications
Data Sources• Firm level customs data come from the General Organization
for Export and Import Control (GOEIC), the Ministry of Industry and Foreign Trade in Egypt from 2006 to 2010 (at the HS4 level).
• Red tape variable (the logarithm of the time to export multiplied by the log of time to import) are taken from the Doing Business database constructed by the World Bank → To have a bilateral variable.
Data Sources• The Gross Domestic Product (GDP) for each country comes
from the World Development Indicators database.
• Other classic gravitational variables, for instance contiguity, common language, distance, common colonizer, etc. come from the Centre des Etudes Prospectives et d’Information Internationales (CEPII) Distance database.
Outline Stylized Facts
Methodology
Data
Empirical Results
Policy Implications
Major Findings (1/2)• Time to export and time to import have a statistically significant
impact on the probability of exporting across different destinations.
Major Findings (2/2)• We disentangle the incidence of administrative barriers on
exporter by their size:Small exporters (<10% or <25%) are more negatively
affected by these barriers than larger firms (>90%).
Small and medium enterprises (SMEs) gain much more from trade facilitation than large multinational ones. These gains are amplified while taking into account the fact that the vast majority of firms in developing countries are small and medium ones and that these companies create more jobs (National Board of Trade, 2003)
To sum up• Red tape barriers negatively affect Egyptian firms.
• This effect seems to be robust for both the intensive margin (the
value of exports) and the extensive one (the probability of exporting across different destinations).
Outline• Stylized Facts
• Methodology
• Data
• Empirical Results
• Policy Implications
Policy Implications of this study• The majority of gains are reaped by Sub-Saharan Africa and
Middle East and North Africa as the exports of electronics, in machinery, metallic products, and textiles and garments are highly boosted (finding in line with Zaki, 2013).
• Policies that lower trade costs and favor access to export markets are likely to increase the number of destinations served by new exporters.
In a general equilibrium framework, more destinations mean more exports, more production and consequently a higher labor demand. This would in turn be beneficial for productivity and job creation, since exporters perform better.
Policy Implications of this study• Red tape barriers may explain why the MENA region is
underperforming in terms of exports performance.
Improving customs authorities by reducing redundant trade procedures: Single window policies Provide support for SMEs through exports clusters. Computerization of Egyptian customs to speed up clearance
time and reduce corruption (already implemented in some Egyptian ports but still needs to be generalized).
Thanks for your attention!