Enhancing Public Availability of Customs Information

In the Islamic Countries

105

Annex 2 – Simulation Results for OIC Member Countries

The gravity model is one of the most widely used and reliable methods in empirical economics.

Having first gained popularity in the 1960s due to its intuitive appeal—larger countries trade

more, and more distant countries trade less, by analogy with Newtonian gravity—it has

subsequently come to be seen as a logical output of many different theoretical models of trade.

Recently, Anderson et al.

have shown that a correctly estimated gravity model can provide a

useful simulation platform to look at the global impacts of trade policy changes. Importantly, the

model set up in this way takes full account of general equilibrium effects, in the sense that the

impact of a change in one country’s policy on its exports to another country depends on what all

other countries in the system do at the same time, because it is relative prices that matter for

the determination of bilateral trade flows.

Kumar and Shepherd

use this approach to provide a rigorous ex ante impact assessment of the

TFA. They focus on developing countries, but include all countries for which data are available

in their model. Although identifying a causal effect is difficult due to a lack of data over multiple

years, it is possible to put some bounds on the likely effects, which suggest that implementation

of the TFA could have a salutary effect on global trade growth.

The simulation reported in the Introduction uses the same data and modeling framework that

is set out in full in Kumar and Shepherd. The only change is that instead of using data on all TFA

provisions, it focuses on just the first four articles. It is important to note that since high

performance on the first four articles tends to be associated with high performance on other

parts of the agreement, the number presented here is likely an upper bound on the true estimate.

Nonetheless, without over-interpreting the result, it is clear that reducing information costs

associated with trade has the potential to boost trade for all countries, including OIC member

countries.

The table below summarizes the results of the gravity model simulations discussed in the

Introduction for OICmember countries. The model follows best practice in the gravity literature,

namely the GE PPML model.

The baseline for the simulations is 2011 using TiVA data from the

OECD-WTO, which was the most recent comprehensive data available as at the time of drafting.

Results are only presented for OIC member countries for which data are available. For each

country, columns show the counterfactual percentage changes in exports, imports, and real

output (real GDP in gross shipments terms for goods sectors only) associated with full

implementation of the first four articles of the TFA. Changes are expressed as percentages of the

baseline. So for example, the table shows that if Morocco were to fully implement the first four

articles of the TFA, it would be associated with an increase in exports of nearly 8% and an

increase in imports of nearly 6%. These figures take account of similar policy changes in all other

countries.

Anderson, J., M. Larch, and Y. Yotov. 2018. “GEPPML: General Equilibrium Analysis with PPML.”

The World

Economy

, 41(10): 2750-2782.

Kumar, U., and B. Shepherd. Forthcoming. “Implementing the WTO Trade Facilitation Agreement: From Global

Impacts to Value Chains.” Working Paper, Asian Development Bank.

Anderson, J., M. Larch, and Y. Yotov. 2018. “GE PPML: General Equilibrium Analysis with PPML.”

The World

Economy

, 41(10): 2750-2782.