Transportation and Complementary Infrastructure

Transportation infrastructure has the most direct impact on trade. Port efficiency has particular influence since the vast bulk of developing countries' trade (by weight) goes through seaports. A new harbor, wharf, or terminal, and procurement of a new crane decrease port costs by 2 percent and 1 percent, respectively (Haveman et al., forthcoming). Increasing the number of berths and deepening channels at ports have a smaller effect.

Capitalizing on the complementarities between different modes of transport can boost trade substantially. Airports and seaports can move more goods, particularly for containerized shipping, when served by efficient rail and road networks. Infrastructure behind the border can have as much effect on the length and variability of time-to-market as freight services between countries. This is particularly true in large or landlocked countries, where inland dry ports have evolved partly in response to this problem. Limao and Venables (2001) found that domestic infrastructure explains only about 40 percent of transport costs for coastal countries, while for landlocked countries domestic and transit country infrastructure together account for 60 percent of transport costs. They also found that land transport is about seven times more costly than sea transport and that lowering a country's trade costs by 10 percent through infrastructure development could increase its exports by over 20 percent.

Telecommunications and information technology infrastructure reduce time costs, including search and border clearance costs. The quality of communication infrastructure services is correlated with the costs of entering into and monitoring contracts with suppliers. It also affects the costs related to the time elapsed between the perception of demand and subsequent supply of products to retailers (Nordas and Piermartini, 2004).

Fink et al. (2002) found that the cost of making a telephone call has a significant and negative impact on bilateral trade flows and a greater effect on trade of differentiated products than homogeneous ones. This highlights the value of information and communication technology (ICT) infrastructure at the dynamic, extensive margin of trade. And as the number of smaller shipments of a wider variety of higher value added products rises, ICT infrastructure services become more valuable and amenable to private sector financing. The same is true for trade in services as its growth outpaces that of goods. The main services traded (banking and business services, communications, etc.) require well-developed infrastructure in both exporting and importing countries.

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