Poverty Reduction Through Trade Promotion: The Importance of Cross-Border Transport Infrastructure

Thus far, we have looked at the issues surrounding transport infrastructure and poverty reduction at the domestic level. However, given increasing globalization, liberalization, and changing patterns in trade, providing regional public goods such as cross-border infrastructure has become more critical in bringing benefits that may not materialize through domestic provision alone. Transport projects constitute one logical area for regional cooperation, considering the impact that infrastructure improvements could have on reducing trade costs and facilitating trade between participating countries (Fujimura, 2004).

The case for investing in cross-border transport infrastructure is most compelling for small countries like Cambodia, Laos, and Myanmar, or countries in Central Asia that are moving from a transition to a market economy. Since they are land-locked and far from markets, these countries have common elements that are motivating them to cooperate (Wescott, 2005).

However, the success of cross-border transport projects will depend on the extent to which they are able to meet three overriding challenges, as identified by Wescott (2005):

First, since several countries are involved in the endeavor, these countries have to agree on a common framework. Transactions such as these take longer and cost more. It is important that governments be aware of this upfront, to avoid frustration.

Second, in many cases, it has also been difficult to get countries on board because there is a lack of convincing evidence on the potential benefits of cross-border infrastructure investment. In a framework of benefit-cost analysis, costs have been easier to estimate since this only requires taking account of material investment cost and financing cost but collecting information on benefits to different countries under various stages of development is far more complicated. Empirical studies approximating the benefits from cross-border transport infrastructure will be necessary to encourage participating countries to increase the amount of cross border infrastructure investment.

Finally, at present, cross-border transport projects are underfunded. The financing requirements are far more than ADB and other development agencies can meet and governments have a difficult time gathering enough resources to support regional projects. Multilateral donors also lack suitable financing and supplements for funding regional projects. The main instruments that multilateral financial institutions such as ADB have are loans that require sovereign guarantees of member counties. The whole process of financing regional projects requires a coordinated allocation of responsibility among the countries as well as participating donor agencies. Coordination will be essential, particularly when there is a need to combine three or four different loans for different nations entailing different sovereign agreements for each loan. In theory grant funds would be appropriate for investments because grant funds will not require sovereign guarantees from involved governments. However, there is a limited amount of grant funds to cover current financing needs.

Comment(s)

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1. Anura Widana
   (posted 28 April 2010 / 07:19:56 PM)
   
   Excellent study, hats off to authors!
   Wish to add three more reasons why poor have not benefited from investments on infrastructure.
   a) In the planning process, the poor people were not identified and planning itself was undertaken poor exclusive
   b) The method/s adopted to rehabilitate/ build infrastructure have not been pro-poor. The implementation team decided to get construction work done through private contractors or politicized institutions both of which did not pay attention to poor in the area. Their main interest was to maximize profits for themselves from investments. Hence, poor lost the opportunity to work in construction and thereby could not benefit by way of wages.
   c) The design teams did not include poverty/social but technical specialists only. This made it difficult for implementers to identify poor people, to plan strategies to get them involved and to brain-storm on other projects/activities to be funded so that poor people benefit more from investments.
2. Mohammad Ziaul Ahsan
   (posted 23 April 2006 / 09:49:14 PM)
   
   Transport not only makes econmic development but also saves climate. This book has given us such path to make sustainable development for poverty eradication. Thanking you for your great participation.