Infrastructure, Geographical Disadvantage and Growth

The authors use different data sets to investigate the dependence of transport costs on geography and infrastructure. Infrastructure is an important determinant of transport costs, especially for landlocked countries. Analysis of bilateral trade data confirms the importance of infrastructure and gives an estimate of the elasticity of trade flows with respect to the trade cost factor of around –3. A deterioration of infrastructure from the median to the 75th percentile raises transport costs by 12 percentage points and re-duces trade volumes by 28 percent. Analysis of African trade flows indicates that their relatively low level is largely due to poor infrastructure. The real costs of trade—the transport and other costs of doing business interna-tionally—are important determinants of a country’s ability to participate fully in the world economy. Remoteness and poor transport and communications infrastructure isolate countries, inhibiting their participation in global produc-tion networks.1 For example, in 1995 landlocked countries on average had an import share in gross domestic product (gdp) of 11 percent, compared with 28 percent for coastal economies. Eight of the top 15 nonprimary export per-formers for 1965–90 are island countries, and none is landlocked (World Bank 1998).2 As liberalization continues to reduce artificial trade barriers, the effec-tive rate of protection provided by transport costs is now, in many cases, con-siderably higher than that provided by tariffs.3 To bring countries further int