Foreign Trade, FDI, and Capital Flows Study

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Assessing the Impact of WTO Accession on Belarus: A Quantitative Evaluation

(World Bank, Washington, DC, 2016-06) World Bank

As a small and open economy, Belarus' development perspectives are intrinsically linked to its ability to produce and sell goods and services competitively in the global marketplace. While Belarus is an open economy, its trade links are concentrated both in terms of products and markets. Mineral goods –most importantly refined oil and potassium chloride - are the main export product accounting for more than 1/3 of total exports. Non mineral exports, including most importantly machinery, vehicles and transport equipment are mostly exported to Russia and other CIS markets, which account for 74 percent of non-mineral exports while the share of EU countries in Belarus non-mineral exports account for less than 15 percent. With Russia's WTO accession in 2012 competitive pressures on Belarus’ major market for non-mineral exports have further intensified. As Belarus is accelerating its own negotiations with the WTO, understanding the challenges and opportunities faced by the country's exporters is critical to putting in place an effective adaptation strategy that will enhance competitiveness and ensure Belarus can take full advantage of more open market access. The objective of this note is to analyze the economic impacts of Belarus' potential accession to the WTO. The note utilizes a modern computable general equilibrium model of the economy of Belarus to simulate impacts on the economy as a whole and on individual sectors.
Moldova Trade Study: Overview

(Washington, DC, 2016-03-03) World Bank

Despite strong economic growth since 2000, Moldova remains one of the poorest countries in the region. Excessive reliance on remittances, export dependency on a few products, and insufficient domestic job creation make the Moldovan economy highly vulnerable to external conditions. As a small and open economy, Moldova’s development potential is linked to its trade and investment integration strategy. Moldova is situated between two large markets: the European Union (EU), which absorbs more than half of Moldova’s exports, and the Russian Federation. Reducing the economic distance to large regional markets and reaping the benefits of openness is key to overcoming Moldova's structural constraints and spurring export-led growth. The objective of the Moldova Trade Study is to contribute to a better understanding of the factors and challenges underlying Moldova’s foreign trade performance and to identify policy interventions that can enhance the competitiveness of Moldova’s exporting firms and the value added of their exports. . The rest of the note is structured as follows: (ii) section two summarizes the analysis of Moldova’s export performance; (iii) section three focuses on constraints on Moldova’s competitiveness; (iv) in section four, the authors consider alternative trade policy scenarios and their implications for the Moldovan economy; (v) section five synthetizes existing analysis on constraints for agriculture competitiveness and exports, while section six evaluates the performance of free economic zones in Moldova. In the final section, the authors present policy recommendations
Moldova Trade Study: Note 4. The Performance of Free Economic Zones in Moldova

(Washington, DC, 2016-03-03) World Bank

In 1995, Moldova introduced free economic zone (FEZ) legislation with the aim of accelerating socioeconomic development by attracting domestic and foreign investment, promoting exports, and creating employment. Since then, seven free economic zones offering tax and customs benefits have been established. This note assesses the static and dynamic economic benefits of the program in Moldova. The free economic zones have been successful in attracting investment from both domestic and foreign sources. The economic zones have become true export platforms, generating a five-fold increase in exported industrial production from the zones between 2004 and 2014. On average, employment in the economic zones had a robust growth in the last seven years and almost doubled since 2008. Evidence suggests that the economic zones have significantly contributed to the diversification of exports and to the changing structure of the Moldovan economy. The effect of the economic zones on domestic firms appears to be modest, however, and unlikely to contribute to the technological upgrading and sophistication of the Moldovan economy. Free economic zones tend to attract industrial activities requiring intensive use of human resources for certain operations. The economic impact of Moldovan free economic zones is ambiguous. Moldovan legislation provides sound and transparent provisions, but the main issue is how this legislation is implemented. The majority of recommendations are focused on streamlining the implementation process, making it easier for companies to operate. Here are the main recommendations for improving the zones : (i) the importance of fiscal incentives should be downgraded by shifting to targeted services for businesses; (ii) reduce corruption and increase accountability by establishing one-stop-shop procedures and elements; (iii) establish a proper mechanism for monitoring and reporting with the zones residents and administrator; (iv) empower the regulator with additional relevant institutional capacities and capabilities; (v) the role of residents in appointing the administrator should be determinant; and (vi) establish a proper mechanism for compensating residents of the zones for restrictive treatment of the real assets.
Moldova Trade Study: Note 1. Analysis of Trade Competitiveness

(World Bank, Washington, DC, 2016-01-30) World Bank

As a small economy, Moldova’s growth and development prospects are closely related to its performance in international and regional markets. In this report the authors have looked at the export performance and competitiveness of the Moldovan economy. This report provides an overview of Moldova’s trade competitiveness. Its objectives are twofold: (i) to present a comprehensive analysis of Moldova’s recent trade performance and (ii) to identify policy measures and interventions that can enhance the competitiveness of Moldova’s export firms and the value added of their exports. The report is divided into two main parts. Part one contains an exports outcome analysis. It assesses export performance along four dimensions that contribute to form a comprehensive picture of the sustainable competitiveness of the export sector, including (i) the level, growth, and market share performance of existing exports (the “intensive margin”); (ii) diversification of products and markets (the “extensive margin”); (iii) the quality and sophistication of exports (the “quality” margin); and (iv) the survival of export flows (the “sustainability margin”). Part two investigates constraints on Moldova’s competitiveness, focusing specifically on a series of supply-side factors, such as the role of backbone and input services and utilities, and access to finance; and the business environment, particularly government regulations affecting trade and governance and institutional quality. The rest of the report is structured as follows: Section two examines overall trends in trade flows, including the growth of exports and imports, the degree of trade openness, and the recent evolution in foreign direct investment flows. In Section three, the authors concentrate on export outcomes, analyzing the sectoral composition, the growth orientation, and degree of diversification of Moldovan exports. The authors also analyze the evolution in the quality and sophistication of exports and the survival of export relationships in different markets and sectors. In the second part of the report, the authors look at productivity dynamics of Moldovan firms in comparative perspective, and then investigate the impact of access to finance, backbone services, trade and customs regulations, and corruption on firm productivity. The authors conclude this report with policy recommendations to improve Moldova's export competitiveness and increase the product and market scope, quality, and sophistication of its export basket.
Moldova Trade Study: Note 2. Is the DCFTA Good for Moldova? Analysis of Moldova’s Trade Options Using a Dynamic Computable General Equilibrium Model

(World Bank, Washington, DC, 2016-01-30) World Bank

Moldova’s recent Association Agreement with the European Union (EU), which includes a Deep and Comprehensive Free Trade Agreement (DCFTA), represents an important opportunity, as well as challenges. This analytical document has been commissioned by the World Bank Group to provide insights into potential outcomes of the DCFTA and of other trade options that Moldova has, using a Dynamic Computable General Equilibrium (DCGE) model calibrated to its economy. This paper begins by describing the general trends in economic relations between Moldova and the EU over the past 10 years, with an emphasis on trade, as well as Foreign direct investment (FDI) and labor migration. This section includes some additional facts and details that complement the Trade Competitiveness Diagnostic. In the second section, the paper presents the main elements of the DCFTA and highlights the trade commitments and concessions that the EU and Moldova undertook. It also includes a short review of available literature on the ex-ante or ex post impact assessments of other Association Agreements between the EU and third countries that have been done using CGE models. The third section presents key features of the DCGE and discusses the data used for assembling the Social Accounting Matrix (SAM). Then, the main features of the simulated trade scenarios are presented. Finally, this paper discusses the DCGE simulation results, including the effects of the various scenarios on welfare, trade, and economic activity level. Some distributional impacts are also brought into discussion. The final section concludes and makes several recommendations.
How to Sustain Export Dynamism by Reducing Duality in the Dominican Republic

(Washington, DC, 2015-03-02) World Bank

This report analyzes export competitiveness in the Dominican Republic drawing from the Trade Competitiveness Diagnostic methodology (Farole and Reis, 2012). Dominican exports fare well in terms of performance, sophistication, and survival in Special Economic Zones. Three main challenges are identified: 1) quality issues and rejection of agro exports in the US border; 2) the role of Special Economic Zones in the new decade and the lack of backward linkages; and 3) excessive concentration in terms of markets that is not addressed by a fragmented institutional setup.
Trade Matters: New Opportunities for the Caribbean

(Washington, DC, 2015-01) World Bank

Trade is essential for Caribbean countries development and poverty reduction. Given their small market size, they are dependent on exports to produce manufactured products at efficient scale. And given their natural amenities, they rely on tourism as a major spur to economic activity. Trade in the Caribbean thus makes an essential contribution to increasing employment and reducing poverty by supporting growth. At the same time, the high dependence on trade also makes Caribbean economies vulnerable to external shocks. For example, the global financial crisis imposed substantial job losses in sectors such as tourism that the poor rely on for employment. This report employs several different, but complementary, empirical approaches to analyzing the impact of this emerging new trade environment on shared prosperity in the Caribbean. These include the following six topics, with each corresponding to an individual chapter: (i) assessment of the Caribbean s performance in reaping the opportunities offered by the new trade environment; (ii) identification of the main determinants of Caribbean countries trade performance; (iii) discussion of the role of innovation and access to keys services in improving the productivity of exporting firms; (iv) exploration of how regional integration and other trade agreements could boost Caribbean trade performance; (v) firm-level examination of the implications of trade for employment; and (vi) identification of which households are involved in international trade and the implications of trade for their socio-economic status.
Costa Rica : Five Years after CAFTA-DR, Assessing Early Results for the Costa Rican Economy

(Washington, DC, 2014-06-13) World Bank

The Dominican Republic - Central America - United States Free Trade Agreement (CAFTA-DR) has been fundamental in creating a stable framework for Costa Rica's trade with the United States. For Costa Rica, CAFTA-DR is more than a trade agreement. Besides eliminating tariffs and reducing non-tariff barriers between member countries, CAFTA-DR also introduced major changes to the legal framework of member countries, reducing barriers to services, promoting transparency, and ensuring a secure and predictable environment for investors. This report analyses how CAFTA-DR has impacted the Costa Rican economy in the five years after ratification, both on a macro level and in key specific sectors. The report shows that CAFTA-DR is yielding benefits to the Costa Rican economy, but it is too early to provide a complete account just after five years. The agreement has succeeded to further trade integration between Costa Rica, the US, and other CAFTA-DR countries. Exports to the US began increasing several years before the agreement, but CAFTA-DR accelerated the trend. Costa Rica continues attracting FDI above levels observed in other CAFTA-DR countries, with an increasing share from US investors and a focus on medical devices and business services. Online survey and interviews of high-tech firms in free trade zones found that CAFTA-DR was an important factor in the investment decisions. CAFTA-DR ignited an explosion of changes in the telecom and insurance sectors, bringing new regulatory frameworks, competition, product innovations, and price reductions. Consumers are reaping the benefits of improved telecom and insurance services. But some issues remain for those markets to mature. Finally, the concern regarding the potential negative impact on the Costa Rican Social Security Administration's finances due to the intellectual property rights measures have not been observed.
Evaluation of the EU-Turkey Customs Union

(Washington, DC, 2014-03-28) World Bank

The implementation of the customs union (CU) in 1995 was the culmination of thirty-two years of association between the European Union (EU) and Turkey and was expected by Turkey to be the first step in the EU accession process. The CU has been a major instrument of integration for the Turkish economy into both European and global markets. The CU covers trade in just industrial goods (including the industrial components of processed agricultural products) and excludes primary agriculture, services, and public procurement but has proved to be a powerful force of regulatory convergence. The evaluation s objectives are to assess the impacts of the CU and to make forward looking, solution-orientated recommendations for its improvement with an emphasis on the economics behind the various trade irritants and options for dealing with problems related to asymmetries as well as examining the case for widening. The evaluation provides quantitative and qualitative estimates of the effects of the CU and demonstrates that the trade agreement has been highly beneficial for both Turkey and the EU. The evaluation consists of two main parts: (i) an evaluation of the impact of the CU on trade, foreign direct investment (FDI), and more broadly, welfare in Turkey through the effects it has had on trade policy, eliminating the need for rules of origin (ROOs) on preferential trade with the EU and implementing the acquis in areas covered by the CU; and (ii) a review of current limitations of the existing trade arrangement, potential gains in dealing with these as well as modalities for reform. The evaluation has six sections. Section one gives introduction. Section two reviews trade and investment outcomes between the EU and Turkey. Section three examines the effects the CU has had on the trade policy environment for Turkey. Section four provides an overview of EU-Turkey trade relations in terms of Turkey s harmonization with EU regulations and use of trade defense instruments. The fifth section examines the potential impacts of widening the trade arrangement to cover new areas in agriculture and services and makes proposals for the modalities that can be used to include these as part of an agreement including in the context of full accession. Section six presents conclusions and recommendations.
Republic of Malawi Diagnostic Trade Integration Study Update : Reducing Trade Costs to Promote Competitiveness and Inclusive Growth

(Washington, DC, 2014-03-25) World Bank

The diagnostic trade integration study (DTIS) update identifies the trade related constraints holding back Malawi from diversifying and deepening its production base, and increasing trade. The DTIS update identifies and quantifies specific trade costs that determine the availability and price of inputs and the ability of producers to get their products to regional and international markets. The report focuses on tariff policies, regulatory issues impacting on trade, trade facilitation and logistics, and policies affecting agricultural trade and trade in services. Recognizing that the (enhanced) integrated framework and the DTIS (including the 2003 DTIS for Malawi) have not been effective in addressing many of the broader issues requiring large-scale physical investments in most countries, this DTIS update focuses on specific trade related policy and regulatory issues within the mandate and policy space of the ministry of trade and the national implementation unit or similar implementation mechanisms. In this context, the report is structured as follows: chapter one gives introduction. Chapter two outlines the current macroeconomic position and the level of trade openness, summarizes the status of the business enabling environment. Chapter three describes Malawi's current trade policy with a detailed review of the existing tariff schedules. Chapter four addresses a range of the key regulatory issues that raise costs for all producers in Malawi. Chapter five looks in depth at how the trade and regulatory policies within the agricultural sector impact on competitiveness. Finally, chapter six addresses the important issues of trade in services through focusing on professional services such as engineering, accounting, and law.