Americas Quarterly - Winter 2012

Latin America’s main exports tend
to be heavy (gold, copper, iron ore, and
nickel) or perishable (fresh fruits and
vegetables). Both categories of goods
are highly sensitive to transporta-
tion costs. In addition, production of
manufactured goods is increasingly
segmented across countries and con-
tinents. The North American auto in-
dustry is a good example of this, as is
textile production within the Domini-
can Republic–Central America–United
States Free Trade Agreement (CAFTA–
DR) countries. Sound infrastructure
can reduce the cost of shipping heavy
goods, expedite perishable ones and
maintain the flow of parts within in-
tegrated supply chains.

iff equivalent for imports is 6. 9 percent (compared to an applied tariff rate of 5. 6 percent) and for exports it is 3. 8 percent (compared to a 5. 2 percent applied tariff rate). 3

CONNECTIONS

Under the right conditions, improvements in infrastructure can have a significant positive impact on trade, growth and development. Infrastructure affects the ability to move goods, services and ideas within countries and to pass goods and services from one country to another; the quality and quantity of investment, as well as investment outcomes; and the population’s access to health and education services essential for development. Infrastructure also has an important role to play in reducing rural poverty. By connecting rural farmers and/or small business owners in isolated geographic pockets to mainstream markets, infrastructure helps combat their social and economic exclusion.

The Inter-American Development Bank (IDB) has recently built on this work and estimated that lowering transport costs by 10 percent would have a dramatically greater impact on export growth than would a commensurate reduction in tariffs. 4

In his 2007 study, “Calculating Tar-
iff Equivalents for Time in Trade,” Da-
vid Hummels concluded that “trading
across borders […] takes longer in de-
veloping countries than in developed
ones for a number of reasons, includ-
ing the quality of infrastructure, pro-
cedural coordination and corruption.”
Hummels calculates the ad valorem
cost of import delays (the “tariff equiv-
alents”) and finds that these costs ex-
ceed tariffs in every region. In Latin
America the tariff equivalent for im-
ports is 8. 9 percent— 1. 9 percent greater
than the average applied tariff rate of
7 percent. For Latin American exports,
the tariff rate equivalent penalty is a
hefty 7. 1 percent, compared to the 3. 9
percent tariff average for Latin Amer-
ican goods crossing borders—nearly
double the cost! For East Asia the tar-
By improving access to social ser-
vices and markets, Calderón and
Servén demonstrated that better ac-
cess to roads and sanitation lowers
a country’s Gini coefficient (a mea-
sure of inequality) between 0.5 and
0.13 percent. 5 At the upper end, such
improvements could move a country
from an income distribution similar
to that of unequal Guatemala to the
level of more egalitarian Uruguay—
no small feat in a region marked by
the world’s highest income inequality.

HOW DO ASIA AND
LATIN AMERICA
COMPARE?

When comparing regions in terms of “hardware”—the roads, ports and air transport infrastructure necessary to physically get goods from one location to another—Latin America consistently scores below Asia [see figure 1, left].

4. 84

4. 40

4. 26

4. 28

4. 43 4. 54

3. 90

3. 97

3. 89 4. 12

3. 67

3. 72

3. 32

Figure 1 displays the aggregate regional results from the World Economic Forum’s Global Competitiveness Index (GCI) rankings, which range from 1 to 7, where 1 corresponds to the worst and 7 to the best possible outcome. The gap between Latin America and Asia is smallest in electricity and telephony and greatest in rail—an area in which Latin America has traditionally underinvested.

1. 82

Overall Transport Roads Railroads Ports Air
Transport
Electricity and
Telephony

Source: World Economic Forum, Global Competitiveness Indicators 2011–12

Figure 2 reveals the differences among countries within the region. Asia, Malaysia and Thailand—which have built up internationally competitive infrastructure networks—and Vietnam—which is rapidly integrating into Asia and whose 2007 WTO entry has increased its integration

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ments among the parties. This article explores whether the Asian experience in addressing transport infrastructure integration at the regional level holds any lessons for Latin America.