Aid for Trade in Asia and the Pacific: Thinking Forward About Trade Costs and the Digital Economy

Aid for Trade (AfT) flows have increased each year since 2006 in the region. And while regional aggregate trade costs continue to fall, many subregions continue to struggle with trade costs that are substantially higher than the global average. Trade performance in the Pacific in particular has been undermined by its geography. At the same time, the relevance of different categories of trade costs is changing. The growing number of firms that are trading online face different logistics and shipping issues than traditional traders. This report takes stock of how AfT has contributed to these trends and considers some constructive ways to move forward, to continue to address trade costs in Asia and the Pacific.

Conclusions

This report reaches six main conclusions:

• Economies in Asia and the Pacific have integrated forcefully in the world economy over the past few decades. In 2011–2013, trade in goods and services equaled 117% of regional gross domestic product (GDP). Intra-regional trade makes up more than one-half of the region’s total trade, and is propelled by the integration of East and Southeast Asian economies in regional value chains.
• AfT flows to Asia and the Pacific improved in 2013. The region was the second-largest recipient of global AfT dollars at $14.9 billion of total disbursements. Across the region, flows have gone mainly to transport, energy, and agriculture. This focus on economic infrastructure has important results. Each $1 spent is estimated to increase exports by $1.33.
• Many trade cost indicators have improved significantly across the region over the past decade, particularly for Central Asia and Southeast Asia. Small changes can have large impacts. It has been estimated that a 10% reduction in the number of documents required by the importer will increase trade by 11%.
• Pacific economies are highly dependent on trade, despite having some of the highest trade costs in the world. Among all subregions, the Pacific (along with South Asia) has made the greatest improvements in the Logistics Performance Index (LPI) from 2007–2014. Recent exporter surveys reveal a movement toward niche products and the leveraging of e-commerce as a means of overcoming distance and cost.
• Emerging digital technologies, such as e-commerce, offer an entirely new set of opportunities for economies in the region to grow through trade. Transactions in Asia and the Pacific are growing at an average of 50% annually and make up nearly half of global transactions. Information and communications technology (ICT) infrastructure is the backbone of this growth. But an enabling regulatory environment is critical for further expansion.
• Women-led businesses are growing in number, unlocking what is still a latent source of job creation and economic growth. While women-owned firms are only 18% of all firms in the region, women-led firms are just as likely to export as male-led firms, and are in fact are more likely to export in some subregions. ICT infrastructure and trade facilitation addresses some of the key constraints to women in business including high search costs, time poverty, and limited access to and learning opportunities.