Measuring trade costs and analyzing the determinants of trade growth in Cambodia

What is it about?

Like in many other least-developed countries (LDCs), high trade costs have long been a major barrier to Cambodia's trade integration. Despite their significance in the Kingdom from the practical and policy standpoints, little is known about the magnitude, evolution, and consequences of these costs. To fill these gaps, this study measures trade costs between Cambodia and its top 30 trading partners from 1993 to 2019, using Novy’s (2013) model. This study makes a marginal contribution to the literature on trade costs in a least-developed country like Cambodia that has traditionally received less attention. This research work is the first to provide a comprehensive measure of trade costs, including a wide range of barriers, such as tariffs, transportation costs, border-related costs, infrastructure inefficiencies, and other factors impeding Cambodia's bilateral trade flows.

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Photo by Vicky T on Unsplash

Photo by Vicky T on Unsplash

Why is it important?

This research paper offers fresh insights and policy implications into how Cambodia's integration into global and regional trade frameworks, which include the ASEAN in 1999, the WTO in 2004, and the Belt and Road Initiative (BRI) in 2013, has influenced its trade costs over time. The findings show that Cambodia’s trade costs have dropped roughly 35.43% since its economic reform in 1993. The decline in these costs explained about 56.69% of the country's trade growth. This study highlights the significance of infrastructure investments under the BRI, as Cambodia’s average trade costs with the trading partners along the BRI corridors have declined at more than twice the rate observed with the non-BRI trading partners since 2014. The findings of the research paper suggest that Cambodia has the potential to optimize its trade growth by focusing on its economic diplomacy strategies with trading partners exhibiting high economic growth and those achieving substantial reductions in trade costs.

Perspectives

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This study emphasizes the critical role of reducing trade costs in enhancing Cambodia’s global trade competitiveness and export diversification. This aligns with the national policy agenda to achieve Cambodia's ambition of attaining upper-middle-income status by 2030 and high-income status by 2050.

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