• April 10, 2014
  • Report

Manufacturers and consumers demand products on time. As trade shifts to time-sensitive complex manufactures and as production segments across countries and continents, timely delivery is increasingly important. What does a one-day delay cost an importer or exporter? What do delays cost in different countries? How can these costs be expressed in dollars?

Manufacturers and consumers demand products on time. As trade shifts to time-sensitive complex manufactures and as production segments across countries and continents, timely delivery is increasingly important. What does a one-day delay cost an importer or exporter? What do delays cost in different countries? How can these costs be expressed in dollars?

Translating Time Data into Money Data

As presented in Calculating Tariff Equivalents for Time in Trade, Purdue University Professor Dr. David Hummels and Nathan Associates have pioneered a method for expressing such costs as a percentage of a good’s value. Data on trade delays are abundant—the World Bank’s Doing Business reports measure the time required to import and export in 175 countries—but the cost of delays is measured in days not dollars. To express costs in dollars terms, what we call “tariff equivalents,” we

1. Estimate the value of one day saved in transit for each product, drawing on trade and shipping data that reveal how much consumers value timely delivery;

2. Calculate the per-day value of time savings for each country, based on the goods it trades or might one day trade; and

3. Calculate tariff equivalents for import and export waiting times by combining each country’s per-day value of time savings with the Doing Business data.

As expected, we find that bulk products are less time-sensitive than complex manufactures and goods subject to rapid depreciation, such as fresh fruit and vegetables. Exports from the rich countries in the Organization for Economic Cooperation and Development (OECD) are the most sensitive, while those from the Middle East and North African countries are the least so. This reflects the importance of sophisticated manufactures in OECD exports compared to bulks such as crude oil in the exports of Middle Eastern and North African countries.

Seeing the Costs of Time

When we combine the per-day values with the Doing Business data, we find that the tariff equivalents for import delays exceed tariffs in all regions; and the tariff equivalents for export delays exceed tariffs in all regions except the OECD and East Asia and the Pacific. In the non-OECD countries of Europe and Central Asia, the tariff equivalents for export delays are three times the tariffs faced by exporters. In other words, the delays that exporters encounter when moving goods across their own borders are three times more costly than the tariffs charged by other countries. In sub-Saharan Africa, the tariff equivalents for time to export are more than four times the tariffs faced by exporters.

Using Cost Data to Guide Decisions

Importers and exporters alike should find these figures ample justification for advocating for better roads and ports, simpler customs procedures, and reduced corruption—improvements classified as “trade facilitation.” Donors and governments will find the figures useful for quantifying the value of such improvements. Finally, our findings suggest that participants in trade negotiations should focus at least as much on trade facilitation as on reducing tariffs.

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