Less bureaucracy at the border reduces poverty

We all want greater border security — but it appears that less border red tape is a way to combat poverty. Today goods, money, and time are all wasted in the way shipments are dealt with when exported. This is a major conclusion drawn in a new dissertation on trade from the School of Economics and Management, Lund University, in Sweden.

Economist Maria Persson has studied how trade between the EU and developing countries could be increased. Over the last ten years this issue has been discussed more and more heatedly by the WTO (World Trade Organization), and one measure that has been suggested is reduced tariffs. Maria Persson’s assessment, however, shows that very good results can be achieved by, instead, simplifying procedures that need to be followed every time a good is shipped from one country to another.

“I focus on how to limit the time it takes for goods to cross the border. The more difficult the procedure for exporting, the longer it will take. My estimations show that if it takes a day less for a good to cross the border, the value of exports could increase by one percent,” says the researcher, who has used questionnaire material from the World Bank where various intermediaries in commerce were asked how long it takes for goods to pass the border, while also controlling for what the ‘normal’ level of trade would be.

“If trade increases, this can lead to increased economic growth and thereby reduced poverty in many countries. At the same time exports would be more diversified, since a greater amount of different products could be exported. This would make developing countries less vulnerable, which is an advantage of this type of reform.”

Many countries have great costs associated with trade itself, a fact that has previously been invisible. In practice, exaggerated bureaucracy and slow processing, for example, lead to food rotting while it is held before being exported or to some competitor winning the race to get the latest high-tech gadget to the market, which lowers the price the gadget could have commanded. Delays cost exporting countries a great deal of money.

At the same time, the issue of tariffs is becoming less and less important, since their general levels are successively declining. This means that there is great potential for increasing trade by introducing more efficient border bureaucracy. “Considering that in most developing countries it takes a very long time for exported goods to pass the country’s own border, an average of 34 days, it is realistic to expect much larger savings than one day without it costing very much. The positive effects could be very large.”

It is often a matter of removing bottlenecks. For instance, more readily available information about what rules apply to exports would simplify matters a great deal for the trader. The countries can limit the number of documents that need to be filled out. Other simple measures are to extend the open hours at offices that perform crucial stamping of documents.

If EU countries also worked to make import procedures more efficient in a corresponding way, the impact would be even greater. At the border, personnel can learn simple techniques for assessing risks by using random inspections, which would help speed up passage and increase security as well.

“‘Trade facilitation’ does not necessarily mean less monitoring, but rather smarter monitoring. Companies that have shipped goods for twenty years without any problems could be trusted more by customs officials, whereas shipments where the exporter has not been shown to be reliable should be checked more carefully. It’s a matter of risk assessment, and that is something that Sweden has been a pioneer in,” says Persson.