New IDB report recommends investments in railways, waterways and upgraded highways to spread benefits of export boom to more municipalities
LIMA, Peru – Latin American countries could significantly boost exports, especially from poor and remote municipalities that have yet to benefit from the region’s recent trade boom, if they focused their efforts on reducing domestic transport costs, according to a new study by the Inter-American Development Bank (IDB).
“Too Far to Export: Domestic Transport Costs and Regional Export Disparities in Latin America and the Caribbean,” looks at the toll imposed on exporters by the region’s precarious, geographically unbalanced and truck-based transport infrastructure. The study was released during a seminar in Lima, in which was opened by Peru´s Minister of Economy and Finance, Miguel Castilla Rubio.
The study, which focuses on Brazil, Chile, Colombia, Mexico and Peru, concludes that countries throughout the region could significantly boost exports if they reduced transportation costs by investing wisely in expanding the network of paved roads and promoting the use of lower-cost railways and waterways. A reduction of just 1 percent in transport costs could increase national exports by 4 percent in Mexico to as much as 7.9 percent in Colombia, according to the authors’ model.
“The biggest beneficiaries of a more developed and efficient transport infrastructure would not be in São Paulo, Mexico City, Bogotá, Santiago or Lima, but in Brazil’s Central West, Mexico’s South, the Peruvian Sierra, Colombia’s southeast and in Chile’s South,” says IDB trade economist Mauricio Mesquita Moreira, coordinator of the study. These areas, which have yet to benefit from the region’s recent trade boom, could see their exports grow by 10 to 45 percent, the report estimates.
In the five countries studied, exports are heavily concentrated in just a few, often wealthy, municipalities that enjoy immediate access to ports. Other, more distant municipalities, often located in rural regions with inferior transportation infrastructure, are less competitive because they face higher logistics costs.
In Brazil, for example, only 19 percent of the municipalities export, representing just 27 percent of the country’s territory. In Colombia and Peru, just 24 percent of municipalities export. In Chile and Mexico, the export base is much broader (69 and 39 percent of the municipalities export, respectively), but most of the exporters are concentrated in a few cities: the top ten municipalities account for 74 percent of total exports in Chile and 69 percent in Mexico.
The flagship report, produced by the IDB’s Integration and Trade Sector, is part of an ongoing effort to increase policymakers’ understanding of the trade consequences of high transport costs. It follows the publication five years ago of “Unclogging the Arteries: The Impact of Transport Costs on Latin American and Caribbean Trade,” which focused on how high international freight costs impact the region’s export competitiveness.
Both reports concluded that while the region has been successful in opening markets at home and abroad, today, it is not the traditional tariff or non-tariff barriers that hamper Latin America’s exports, but the cost of shipping goods.
The main culprit: Underinvestment, especially in cheaper and alternative modes of transportation such as rail and waterways. In some cases, budget constraints are to blame, but in many instances, it is because public institutions face difficulties in designing, evaluating and carrying out investments in transportation infrastructure. Regulatory reform also is necessary to allow governments to leverage private sector investment.
All these predicaments stand on the way of the promising infrastructure-improvement initiatives that all countries included in the study already have embarked on. They include Brazil’s, Chile’s and Colombia’s National Logistic Plans, and Mexico’s and Peru’s Road Programs, which, if fully implemented, will positively impact transport costs and will eventually benefit the less developed and remote regions.
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