Abstract
Abstract Despite enormous academic interest in international trade costs and keen policy interest in efforts to reduce them, little is known about the effects of trade facilitation measures. This study evaluates a significant Albanian reform that sharply reduced physical inspections of import shipments. An estimation strategy that isolates quasi-random variation in the allocation of shipments to physical inspections is used to show that reduced inspections significantly increase imports. Import flows that are observed least frequently see the largest trade responses to reduced inspections. The effect of inspections on imports is virtually independent of changes in clearance time and clearance time uncertainty. Tariff and other tax revenues collected at the border rise in direct proportion to growth in declared import value. There is no compelling evidence that reduced inspections increase evasive behavior, perhaps because most of Albania's imports are tariff-free.
Highlights
An enormous literature attempts to measure the size of implicit international trade costs and to explain them.1 Despite all this activity, there is to date very little hard evidence on the effectiveness of policy changes that might be expected to mitigate these costs.2 But the dearth of hard evidence has not restrained policy makers, who signed an ambitious trade facilitation agreement in the 2013 World Trade Organization (WTO) ministerial while promising hundreds of millions of US dollars in initiatives to support trade facilitation in developing countries.3 One of the most prominent of the trade facilitation measures contained in the WTO agreement, and one of the most challenging for developing countries to implement, is the adoption of risk-based methods of selecting shipments for inspection
This paper investigates the impacts, on time and on import activity, of a substantial decline in physical inspection rates that occurred as the Albanian customs authority substantially upgraded its risk-based inspection capabilities
The first-stage coefficient implies that a firm-product-country cell that moves from having the majority to having only a minority of its shipments physically inspected in a year has a decline in the expected median time to clear customs of 7% (=-1*0.07)
Summary
An enormous literature attempts to measure the size of implicit international trade costs and to explain them. Despite all this activity, there is to date very little hard evidence on the effectiveness of policy changes that might be expected to mitigate these costs. But the dearth of hard evidence has not restrained policy makers, who signed an ambitious trade facilitation agreement in the 2013 World Trade Organization (WTO) ministerial while promising hundreds of millions of US dollars in initiatives to support trade facilitation in developing countries. One of the most prominent of the trade facilitation measures contained in the WTO agreement, and one of the most challenging for developing countries to implement, is the adoption of risk-based methods of selecting shipments for inspection. Hornok and Koren (2014) and Persson (2013) link time in trade to different measures of the composition of trade.5 While these studies are interesting because they quantify the effects of cross-country variability in the administrative hurdles required to trade, their findings are not informative about the impacts of policy reforms in customs procedures as our study is for Albania. Relying on outside estimates of a key structural parameter, we are able to use the structural decomposition in Hummels and Schaur to provide a rough estimate of the tariff-equivalent effect of the customs reforms in Albania We calculate that those firm-product-country observations for.
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