The Role of Infrastructure in Reducing Trade Costs

At this 25-26 June conference, over 60 economists and researchers examined the impacts of hard infrastructure, such as air and sea ports, highways, and railways on reducing trade costs, but also emphasized the important role of soft infrastructure in reducing trade costs. Soft infrastructure may take the form of more efficient trade policies, procedures, and institutions, as well as deeper reforms that lead to more foreign direct investment.

This conference demonstrated that variations in tariffs and changes in transport costs resulting from infrastructure facilities have significant influences on regional trade flows in Asia. It also illustrated how the growth and improvement of infrastructure can be a cost-effective means of lowering trade costs and thereby promoting trade growth. Meanwhile, it created a platform to discuss the role that infrastructure can play in enhancing trade facilitation and regional integration.

Country case studies from the PRC, India, Indonesia, and Malaysia focused on different aspects of the context for developing trade-related infrastructure. International experts in trade cost analysis explored recent trends in trade patterns, composition, and transport modes. They also employed a cross-country analysis to highlight the effects of seaport development on reducing trade costs.

Conference participants highlighted the following infrastructure development strategies for developing countries in Asia:

• Design an infrastructure investment priority strategy for each national region and each infrastructure sector;
• Improve the efficiency of both infrastructure facilities and institutions;
• Attract more FDI in infrastructure development in order to alleviate the shortage of financial resources, and utilize technology transfer brought by FDI to improve infrastructure efficiency; and
• Develop seamless multi-modal transport and seamless logistics systems.

Conference participants also identified the following future research areas for infrastructure’s role in reducing trade costs:

• Developing infrastructure investment strategies for national regions and infrastructure sectors in terms of priority and timing, in order to facilitate trade development;
• Determining the impacts of different forms of infrastructure on attracting FDI; and
• Examining the relative impacts of soft infrastructure improvements in reducing trade costs.