The Cambodian Trade Miracle (1993–2019) : How Falling Trade Costs Fueled a Post-Liberalization Boom

What is it about?

Background: Like in many other least-developed countries (LDCs), high trade costs have long been a major barrier to Cambodia's trade integration. Despite their practical significance and increasing policy attention in the country, little is known about these costs. Purpose: Since its economic liberalization in the 1990s, Cambodia recorded a 46.5-fold increase in its total merchandise trade volumes, rising from US$ 755 million in 1993 to US$ 35.1 billion in 2019, equivalent to a growth rate of 15.9 percent per year. Between these periods, Cambodia’s trade expansion significantly outpaced regional and global trends, with its growth rate exceeding twice the ASEAN average and more than double the global average. Hence, the question arises: has the decline in trade costs played a role in Cambodia’s trade growth over the past two decades? Methodology: A micro-founded measure of trade costs introduced by Novy (2013) is employed to quantify the bilateral trade costs between Cambodia and its top 30 trading partners from 1993 to 2019. Originality/value: This article contributes to the literature on Cambodia's trade costs by being the first to provide a comprehensive measure of these costs, including a wide range of trade 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 Paul Teysen on Unsplash

Photo by Paul Teysen 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 nation'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.

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