These figures illustrate that there
is plenty of room to cut transport
costs. The question is: what can
governments do? After all, freight
rates, unlike tariffs, are not just
the product of bad policies alone.
Factors such as geography or the
composition of trade also matter.
Two important clues arise
when looking at the differences
in transport costs between Latin
America and other regions. First,
trade composition is important.
The goods that the region imports
and exports—particularly products
such as mineral or agricultural
goods—are considerably “heavier”
than those of the United States or
Europe.
Therefore, poor and costly
transport infrastructure can
severely undercut the rents
that countries can extract from
exporting their natural-resource-intensive goods, leaving less
money on the table relative to
other regions that specialize in less
transport-intensive goods.
This alone serves as a powerful
reminder of the strategic
importance of transport
infrastructure for Latin America
and the Caribbean.
The second clue: factors like
port efficiency or competition
in transport services are key
contributors to the higher freight
rates observed in the region. For
instance, inefficiencies in ports
and airports generally explain
about 40 percent of the difference
in shipping costs between the
A 10 percent reduction in
transport costs
would boost both intra-
regional exports and
the number of products
exported by a far greater
margin than a 10 percent
tariff reduction.
region and the U.S. or Europe. For
the typical Latin American country,
improving port efficiency to the
U.S. level would lower transport
costs by about 20 percent.
These results suggest that there is
no shortage of policy areas where
the region can delve more deeply.
For example, many countries have
yet to adopt the successful regional
and global experiences for port
terminal concession contracts that
have brought modern operation
practices and higher berth
productivity. Promoting investment
to expand the limited current
capacity of the port network in the
region is imperative.
Juan Blyde is a senior economist
and Mauricio Mesquita Moreira
is a principal economist in the
Integration and Trade Sector at the
Inter-American Development Bank.
POLICY UPDATE
DOLLARIZATION
Ecuador’s Monetary
Management
MarÍa de la Paz Vela
Ecuador’s 10-year experiment with dollarization is at a crossroads. Unless public
spending can be reined in and the
government can come up with a
sound budget, the experiment could
collapse in the medium term.
The elimination of the sucre,
which had lost 300 percent of its
value in the 18 months preceding
dollarization, has created a long-needed sense of financial stability.
Ecuador’s GDP grew an average
of 5 percent annually from 2000
to 2006, more than double the
