Jose Guilherme Reis Practice Manager Global Trade Team Singapore April 27 2016 Defining global Connectivity An uncompleted task Connectivity has become a buzzword in policymaking circles from various specialties ID: 532848
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Slide1
Global connectivity and Trade: Measuring Connectivity and its impact
Jose Guilherme ReisPractice Manager, Global Trade TeamSingapore, April 27, 2016Slide2
Defining (global) Connectivity: An uncompleted task
Connectivity has become a buzzword in policy-making circles from various specialties.Unfortunately the concept is purely intuitive so far: Connectivity is not (yet) defined properly as a formal concept in economics. As a result:
R
isk of ad-hoc and potential loose use of the concepts: rebranding of existing interventions, proliferation of metrics which may not be all new and relevant.
Lack of good understanding of the impact of connectivity
improvement on trade and growth.
Need for a cross-cutting effort to make the concept robust and implementable, and backed by robust tools and indicators. This program has emerged, but is far from complete.
In this presentation:
How connectivity may be best defined
How connectivity for global services networks is related to trade outcomes
Existing relevant metrics
World Bank knowledge programSlide3
Networks and Connectivity
In most serious applications, Global Connectivity refers intuitively (and etymologically) to a network of countries:Connectivity is a multi-dimensional concept and refers to interdependent layers: trade, global services, finance, infrastructure etc.
Connectivity should summarize information on the structure of the network as well as friction/costs on this network (e.g. trade costs for international trade).
Interconnectedness means that third country effects are important: Trade between A and B ultimately depends on trade between C and D.
It means that cross-country connectivity indicators should not only refer to country specific variables, but incorporate information on the entire network.
Connectivity applies also at
different
scales:
g
lobal
,
regional
,
subnational
or city
levels.
In the context of global connectivity, international trade patterns are the intermediary outcome of connectivity in global services and infrastructure networks (e.g. shipping, logistics)
=> Connectivity Indicators as Network ConceptsSlide4
Measuring trade costs
Basis for a G20 monitoring frameworkAggregate trade costs
Tariffs
NTMs
Logistics performance/ trade facilitation
Connectivity
Investment climate
Geography
Cultural/historical ties
Services barriers
Trade growth/
Productivity/
Welfare
Captures all trade frictions
Specific determinants
3Slide5
Elasticity of trade costs
“To what extent are trade costs affected by items on
vertical axis (e.g., exchange rate)?
”
4
A metric of global integration and a policy outcome
Trade costs are influenced by given contingent factors such as distance, language or history and preferences.
Connectivity (e.g. logistics and global networks) policies influence trade costs the most.
Aggregated trade
costs per country
is a metric of global economic integration as connectivity on the international trade and production web.Slide6
Trade Costs and policy variables
5Slide7
All inclusive trade costs are more than an order of magnitude higher than tariff rates of protection, or transportation costs
Trade costs in developing countries are much higher than in developed and emerging countries, and they are falling more slowly.Trade costs in agriculture are much higher than trade costs in manufacturing in all income groups, and they are basically static over time.
Remoteness from markets is not the only factor responsible for higher costs of developing countries (i.e., higher trade costs): policy also matters.
6
Trends in Trade
Costs
and IntegrationSlide8
Connectivity metrics
There are relatively few true connectivity metrics, referring to specific network layers, and based on actual network concepts:UNCTAD Liner Shipping Connectivity index (bilateral and country level)Air Connectivity Index (pilot by World Bank, being scaled up as full index).
Trade costs (see above)
Experimental indices for aviation (IATA) or port (Georgia Tech)
Several country-level indicators, although not network constructed but country-specific outcome, are capturing some connectivity-related information: Logistics Performance Index, World Development Indicators related to ICT infrastructure, Trade restrictiveness indices…
Several institutions produce meta-indicators for trade and connectivity, by making a smart combination of indicators from various sources. The most used is the WEF Enabling Trade Index.Slide9
Existing connectivity indicators:
The World Bank’s Logistics Performance Index (LPI)8
Benchmarking tool
to identify logistics bottlenecks
Coverage: 160
countries
P
ublished
every 2 years
International LPI
: Countries evaluated by trading partners
Dimensions: Infrastructure, Customs, Logistics services quality, Timeliness, Ease of arranging shipments, tracking and tracing ability
Domestic LPI
: Countries evaluated by logistics professionals working inside it
Built on >5,000 country assessments by >1,000 logistics professionals (survey-based)Respondents rate a country’s logistics performance on a scale of 1 to
5Slide10
Existing connectivity indicators: The World Economic Forum’s Global Enabling Trade Index (ETI)
The ETI is made up of four sub-indexes:
Market access
Border administration
Transport and communications infrastructure
Business environment
The ETI measures the factors, policies and services that facilitate the trade in goods across borders
Coverage: 138 countries (in 2014)
P
ublished
every two
years; first published in 2008
The ETI ranks countries using data from different sources, incl. the WEF Executive Opinion Survey, World Bank LPI, UNCTAD LSCI, ITC, IATA, ITU, Global Express AssociationSlide11
Existing connectivity indicators: UNCTAD’s Liner Shipping Connectivity Index (LSCI)
10
The LSCI captures how well countries are connected to global shipping networks.
It
is based on 5 components:
number
of ships, container-carrying capacity,
maximum
vessel size, number of services, and number of companies that deploy container ships in a country's ports.
The
index generates a value of 100 for the country with the highest average index in 2004.
UNCTAD also produces a bilateral indicator of shipping connectivity liner shipping bilateral connectivity index (
lbsci
), depending on the same variables above and normalized between zero and one.
Source: UNCTAD/ Dr. Jean-Paul Rodrigue, Dept. of Global Studies & Geography, Hofstra UniversitySlide12
Challenges
The development of “true” connectivity indicators is still work in progress.Assessing the
impact of connectivity
on trade and growth is
complicated and not mastered yet, given
interdependence
of network layers and especially when looking at bilateral connections (next slide).
The impact of global connectivity, especially maritime connectivity, cannot be reduced to global connectivity indicators. The impact depends on national enabling policies (connectivity between hub and gateways and their hinterland): Singapore did benefit from being a major hub, but this pattern is not universal.
What is the value of being a hub?
is a simple but not fully answered question.
Some major trends and initiatives are
disrupting current connectivity patterns
in ways which are not yet understood: slower growth of trade (new normal?), One Belt-One Road (OBOR) and major investments, industry consolidations, green logistics…Slide13
Interdependence: Bilateral trade costs vs. bilateral shipping connectivity
Higher bilateral connectivity is associated with lower bilateral trade costs. Yet the relationship is complex and causality runs in both directions, as trade influences demand for more frequent and more direct services.
X-axis = UNCTAD Liner Shipping Connectivity Index (Bilateral connectivity) (0<lsbci<1)
Y-axis = WB-UNESCAP bilateral trade costs (in %) Slide14
What we plan to contribute to global knowledge on connectivity
More and better indicators: Trade Costs (series by country), Air Connectivity, new LPI coming in June 2016.Project-oriented tools:Connectivity Assessment (= estimating the impact of connectivity changes)
Local Multidimensional Connectivity
Two global knowledge activities, directly related to Global Connectivity:
Program on Economic Networks to boost research and applications of network science in various areas relevant to the World Bank Group and the IMF missions (including but not exclusively trade and connectivity), in partnership with academia (MIT).
Global Trade Connectivity flagship, another
pluri
-disciplinary effort, which will develop further the themes of this presentation: understanding the impact on trade of new connectivity patterns such as OBOR, industry trends, green logistics…Slide15
Thank you
Contact:Jose Reis ▪ jreis@worldbank.org ▪ Washington, DC