Economic Freedom as Catalyst for Trade Enhancement:  Circularity in Causal Relations “ SAARC Governments commitment  to  E...
Economic Freedom in South Asia
<ul><li>Economic Freedom (asociated with a classical liberal  viewpoint): “The freedom to produce, trade and consume any g...
<ul><li>Time dealing with officials of taxation & regulatory authorities as % of management time </li></ul><ul><li>Average...
<ul><li>Firms using banks to finance investment of firms </li></ul><ul><li>Value lost due to electrical outages of Sales <...
Economic Freedom in Selected SAARC Countries  32.6 7.6 - - 16.2 - 42.2 0.5 16.3 49.5 5.1 3.5 Sri Lanka 84.8 6.7 35.9 1.3 9...
<ul><li>Indices of economic freedom attempt to measure (free market) economic freedom, and some empirical studies based on...
<ul><li>Size of Government </li></ul><ul><li>Legal System & Property Rights </li></ul><ul><li>Sound Money </li></ul><ul><l...
Economic Freedom in Selected SAARC Countries  (Rank: Out of 141 Countries)  8 17 24 15 63 United Kingdom 101 119 116 131 1...
Regional Trade in South Asia:  An overview
Merchandise Trade of SAARC Trade Bloc   $ Millions 2 28268000 470626 21377 11,155 10,222 2007 2 24553000 390816 18206 9,09...
Regional Trade as % of total bloc exports 5 5 6 6 4 4 4 1985 SAARC 9 9 8 7 6 8 3 1985 ECO 25 25 25 25 23 25 20 1967 ASEAN ...
Regional Trade as % of world exports 1 1 1 1 1 1 1 1985 SAARC 2 2 2 2 1 1 1 1985 ECO 6 7 6 6 7 6 5 1967 ASEAN 13 14 14 15 ...
Indicators of Trade Liberalization and Barriers
Enabling Trade Index Source: World Economic Forum Scores (1-7) 4.4 4.2 4.8 3.2 Capital controls 5.3 5.7 5.7 5.4 Business i...
Enabling Trade Index (Rank out of 121)   Source: World Economic Forum 75 79 63 112 Capital controls 54 24 25 50 Business i...
Financial Development Index Score (1-7)  2.0 2.0 Domestic financial sector liberalization 39.6 23.8 Cost of enforcing cont...
Financial Development Index (Rank out of 52) 38 49 Domestic financial sector liberalization 46 27 Cost of enforcing contra...
Tariff Barriers 5.9 14.6 15.2 22.0 13.0 14.5 26.1 weighted mean tariff 10.5 14.9 12.5 22.2 16.0 17.5 15.5 Simple mean tari...
Causality Analysis
Circularity in Relations Factors of Economic Freedom Trade Enhancement & Liberalization Trade Competitiveness
Causal Relations Dependent variable: Goods Market Efficiency Legal System & Property Rights Goods Market Efficiency Size o...
Causal Relations Dependent variable: Labour Market Efficiency   Labour Market Efficiency  Legal System & Property Rights L...
Causal Relations Dependent variable: Financial Market Sophistication   Legal System & Property Rights Financial Market Sop...
Causal Relations Dependent variable: Technology Readiness   Freedom to Trade Internationally Technology Readiness 8.82 T-S...
Causal Relations Dependent variable: Innovation   Soft Business Regulations Innovation Sound Money 5.27 8.92 T-Statistics ...
Causal Relations Dependent variable: Institutional Governance   Size of Government Institutional Governance 5.08 T-Statist...
Causal Relations Dependent variable: Business Sophistication   Soft Business Regulations Business Sophistication Sound Mon...
Business Competitiveness Export of Goods Market Size Simultaneity in International Trade Import of Services  Import of Goo...
Estimated Parameters: Regression Results     3.881 15463.32 BCI     2.99 7558.888 MSIZ     13.817 0.022 GDP 161.216 0.8482...
Conclusion
<ul><li>Trade enhancement and liberalization and factors of Economic Freedom are jointly determined through trade competit...
Trade Barriers in South Asia <ul><li>Losses due to electrical outages and average time to clear exports through customs ar...
<ul><li>The simultaneous relations show that the commerce departments and their associated institutions are not only respo...
Thank You....
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Economic Freedom Final

  1. 2. Economic Freedom as Catalyst for Trade Enhancement: Circularity in Causal Relations “ SAARC Governments commitment to Economic Freedom in South Asia” Dr. Ayub Mehar Director General (R&D) The Federation of Pakistan Chambers of Commerce & Industry (FPCCI) Seminar organized by SAARC Chamber of Commerce & Industry (SCCI) Islamabad 11 th August, 2009
  2. 3. Economic Freedom in South Asia
  3. 4. <ul><li>Economic Freedom (asociated with a classical liberal viewpoint): “The freedom to produce, trade and consume any goods and services acquired without the use of force, fraud or theft”. </li></ul><ul><li>Another more philosophical perspective emphasizes its context in distributive justice and basic freedoms of all individuals. </li></ul><ul><li>This is embodied in the rule of law, property rights and freedom of contract, and characterized by external and internal openness of the markets, the protection of property rights and freedom of economic initiative. </li></ul>Economic Freedom: Scope and Limitations
  4. 5. <ul><li>Time dealing with officials of taxation & regulatory authorities as % of management time </li></ul><ul><li>Average number of times management met with tax officials </li></ul><ul><li>Time required to obtain operating license </li></ul><ul><li>Unofficial payments to public officials </li></ul><ul><li>Losses due to theft, robbery, vandalism and arson of Sales </li></ul><ul><li>Firms that do not report all sales for tax purposes of firms </li></ul><ul><li>Firms with female participation in ownership of firms </li></ul>Indicators of Economic Freedom Cont….
  5. 6. <ul><li>Firms using banks to finance investment of firms </li></ul><ul><li>Value lost due to electrical outages of Sales </li></ul><ul><li>ISO certification ownership of firms </li></ul><ul><li>Average time to clear exports through customs days </li></ul><ul><li>Firms offering formal training </li></ul>Indicators of Economic Freedom
  6. 7. Economic Freedom in Selected SAARC Countries 32.6 7.6 - - 16.2 - 42.2 0.5 16.3 49.5 5.1 3.5 Sri Lanka 84.8 6.7 35.9 1.3 9.8 - 49.5 0.1 72.6 11.8 14.4 18.3 China 42.0 2.5 31.4 1.8 23.8 - - 0.3 - - 5.2 7.3 Malaysia 11.1 15.9 16.2 Firms offering formal training % of firms Workforce 9.7 15.6 8.4 Average time to clear exports through customs days Trade 17.0 22.5 7.8 ISO certification ownership % of firms Innovation 25* 6.6 10.6 Value lost due to electrical outages % of Sales Infrastructure 3.6 19.4 24.7 Firms using banks to finance investment % of firms Finance - 9.1 16.1 Firms with female participation in ownership % of firms Gender - 59.2 - Firms that do not report all sales for tax purposes % of firms Informality 0.1 0.1 1.2 Losses due to theft, robbery, vandalism and arson % of Sales Crime 57.0 47.5 85.1 Unofficial payments to public officials % of firms Corruption 35.2 - 6.1 Time required to obtain operating license days Permits and licenses 4.2 3.1 1.4 Average number of times management met with tax officials 8.7 6.7 3.2 Time dealing with officials % of management time Regulations and tax Pakistan India Bangladesh    
  7. 8. <ul><li>Indices of economic freedom attempt to measure (free market) economic freedom, and some empirical studies based on some these rankings have found it to be correlated with higher living standards, self-reported happiness, and peace. </li></ul><ul><li>One of the leading ‘Economic Freedom Index’ is jointly prepared by the Fraser Institute, Yale Center for Environmental Law and Policy (YCELP), Center for International Earth Science Information Network (CIESIN) at Columbia University, World Economic Forum (WEF) and Joint Research Center (JRC) of European Comission. </li></ul><ul><li>The key ingredients of the Economic Freedom Index are: </li></ul>Economic Freedom Index
  8. 9. <ul><li>Size of Government </li></ul><ul><li>Legal System & Property Rights </li></ul><ul><li>Sound Money </li></ul><ul><li>Freedom to Trade Internationally </li></ul><ul><li>Credit Market Regulations </li></ul><ul><li>Labor Market Regulations </li></ul><ul><li>Business Regulations </li></ul>Factors of Economic Freedom Index
  9. 10. Economic Freedom in Selected SAARC Countries (Rank: Out of 141 Countries) 8 17 24 15 63 United Kingdom 101 119 116 131 10 Bangladesh 7 27 4 21 42 United States 98 94 129 93 46 Sri Lanka 98 71 113 54 41 India 76 115 122 111 48 Pakistan Regulations Freedom to Trade Internationally Sound Money Legal System & Property Rights Size of Government Countries
  10. 11. Regional Trade in South Asia: An overview
  11. 12. Merchandise Trade of SAARC Trade Bloc $ Millions 2 28268000 470626 21377 11,155 10,222 2007 2 24553000 390816 18206 9,097 9,109 2006 2 21350000 326958 14685 7,419 7,266 2005 1 18793000 245950 11902 6,072 5,830 2004 1 13183000 144826 5821 3,141 2,680 2000 1 10448000 106426 4266 2242 2024 1995 Total Imports Exports % share of SAARC total trade with world in World's total Trade World's total Trade SAARC Total Trade with world SAARC Trade Within Bloc Year
  12. 13. Regional Trade as % of total bloc exports 5 5 6 6 4 4 4 1985 SAARC 9 9 8 7 6 8 3 1985 ECO 25 25 25 25 23 25 20 1967 ASEAN 51 54 56 56 56 46 42 1994 NAFTA 68 67 67 68 67 66 68 1957 European Union 2007 2006 2005 2004 2000 1995 1990 Year of creation  
  13. 14. Regional Trade as % of world exports 1 1 1 1 1 1 1 1985 SAARC 2 2 2 2 1 1 1 1985 ECO 6 7 6 6 7 6 5 1967 ASEAN 13 14 14 15 19 17 17 1994 NAFTA 39 38 39 41 38 38 40 1957 European Union 2007 2006 2005 2004 2000 1995 1990 Year Of creation  
  14. 15. Indicators of Trade Liberalization and Barriers
  15. 16. Enabling Trade Index Source: World Economic Forum Scores (1-7) 4.4 4.2 4.8 3.2 Capital controls 5.3 5.7 5.7 5.4 Business impact of rules on FDI 4.2 4.2 4.8 3.7 Ease of hiring foreign labor 4.6 4.4 3.8 3.1 Property rights Regulatory environment 8 8 9 6 Documents for Exports (No. of documents required to export) 9 6 8 8 Documents for imports (No. of documents required to import) Import - Export procedures 3.7 3.7 3.6 2.4 Burden of Custom Procedures 4.0 6.2 10.4 6.7 Complexity of tariffs (average of the variance of tariffs) 34.1 20.3 30.9 48.0 Non-tariff barriers (Index: average of two non-tariff barriers related variables) 10.9 8.2 11.5 13.0 Tariff Barriers (Trade-weighted average tariff rate) Market Access India Sri Lanka Pakistan Bangladesh Indicators
  16. 17. Enabling Trade Index (Rank out of 121) Source: World Economic Forum 75 79 63 112 Capital controls 54 24 25 50 Business impact of rules on FDI 98 93 53 113 Ease of hiring foreign labor 51 56 83 111 Property rights Regulatory environment 83 83 98 42 Documents for Exports 85 30 66 66 Documents for imports Import - Export procedures 65 64 76 119 Burden of Custom Procedures 107 59 48 27 Complexity of tariffs 48 31 43 76 Non-tariff barriers 94 78 95 108 Tariff Barriers Market Access India Sri Lanka Pakistan Bangladesh Indicators
  17. 18. Financial Development Index Score (1-7) 2.0 2.0 Domestic financial sector liberalization 39.6 23.8 Cost of enforcing contracts (as a % of debt) 1420 880 Time to enforce a contract (No. of days) 46 47 Number of procedures to enforce a contract 3.9 2.4 Centralization of economic policymaking 2.9 3.0 Burden of government regulation India Pakistan Indicators
  18. 19. Financial Development Index (Rank out of 52) 38 49 Domestic financial sector liberalization 46 27 Cost of enforcing contracts 51 46 Time to enforce a contract 48 49 Number of procedures to enforce a contract 18 44 Centralization of economic policymaking 32 31 Burden of government regulation India Pakistan Indicators
  19. 20. Tariff Barriers 5.9 14.6 15.2 22.0 13.0 14.5 26.1 weighted mean tariff 10.5 14.9 12.5 22.2 16.0 17.5 15.5 Simple mean tariff Manufactured products % 9.5 8.8 9.9 18.0 17.0 37.7 8.8 weighted mean tariff 15.2 14.1 12.5 17.8 24.0 42.6 15.6 Simple mean tariff Primary Products % 1.5 0.5 0.6 0 0 0 0.1 Share of tariff lines with Specific rates 23.1 43.2 16.8 72.3 16.0 61.6 41.5 Share of tariff lines with international peaks 7.0 12.2 13.4 20.5 15.0 21.5 19.9 Weighted mean tariff 11.0 14.8 12.5 21.3 17.0 22.2 15.5 Simple mean tariff 29.6 52.2 26.0 37.0 50.0 - 161.7 Simple mean bound rate 36.8 44.8 99.4 97.1 74.0 - 15.1 Binding Coverage All Products % Sri Lanka Pakistan Nepal Maldives India Bhutan Bangladesh  
  20. 21. Causality Analysis
  21. 22. Circularity in Relations Factors of Economic Freedom Trade Enhancement & Liberalization Trade Competitiveness
  22. 23. Causal Relations Dependent variable: Goods Market Efficiency Legal System & Property Rights Goods Market Efficiency Size of Government 4.7 4.9 T-Statistics -0.10 0.86 Coefficient of Correlation Size of Government Legal System & Property Rights Explanatory Variables
  23. 24. Causal Relations Dependent variable: Labour Market Efficiency Labour Market Efficiency Legal System & Property Rights Labour Market Regulations Freedom to Trade Internationally 5.66 8.47 3.21 T-Statistics 0.46 0.58 0.64 Coefficient of Correlation Freedom to Trade Internationally Labour Market Regulations Legal System & Property Rights Explanatory Variables
  24. 25. Causal Relations Dependent variable: Financial Market Sophistication Legal System & Property Rights Financial Market Sophistication Freedom to Trade Internationally Credit Market Regulations Sound Money 7.87 8.48 5.39 9.15 T-Statistics 0.49 0.46 0.60 0.81 Coefficient of Correlation Sound Money Credit Market Regulations Freedom to Trade Internationally Legal System & Property Rights Explanatory Variables
  25. 26. Causal Relations Dependent variable: Technology Readiness Freedom to Trade Internationally Technology Readiness 8.82 T-Statistics 0.55 Coefficient of Correlation Freedom to Trade Internationally Explanatory Variables
  26. 27. Causal Relations Dependent variable: Innovation Soft Business Regulations Innovation Sound Money 5.27 8.92 T-Statistics 0.42 0.74 Coefficient of Correlation Sound Money Soft Business Regulations Explanatory Variables
  27. 28. Causal Relations Dependent variable: Institutional Governance Size of Government Institutional Governance 5.08 T-Statistics -0.20 Coefficient of Correlation Size of Government Explanatory Variables
  28. 29. Causal Relations Dependent variable: Business Sophistication Soft Business Regulations Business Sophistication Sound Money 8.92 3.93 T-Statistics 0.74 0.74 Coefficient of Correlation Sound Money Soft Business Regulations Explanatory Variables
  29. 30. Business Competitiveness Export of Goods Market Size Simultaneity in International Trade Import of Services Import of Goods GDP Institutional Governance Innovations Export of Services
  30. 31. Estimated Parameters: Regression Results     3.881 15463.32 BCI     2.99 7558.888 MSIZ     13.817 0.022 GDP 161.216 0.8482 -5.894 -80974.4 Constant Import of Services (IMS)     -3.123 -32215.089 INST     6.327 66902.79 INOV 32.641 0.4239 -3.604 -75101.1 Constant Export of Services (EXS)     28.093 0.594 EXG     33.102 0.099 GDP 3859.103 0.989 1.882 6174.282 Constant Import of Goods (IMG)     6.586 181713 BCI 43.379 0.3301 -5.609 -664223.26 Constant Export of Goods (EXG) F-Statistics Adusted R-square T-Statistics Coefficients Independent Variables Dependent Variable
  31. 32. Conclusion
  32. 33. <ul><li>Trade enhancement and liberalization and factors of Economic Freedom are jointly determined through trade competitiveness. </li></ul><ul><li>The Factors of Economic Freedom (Legal System, Size of Government, Freedom to Trade Internationally, Sound Money and Regulations) are significant determinants of Trade Competitiveness (Goods Market Efficiency, Labour Market Efficiency, Financial Market Sophistication, Governance, Technology Readiness and innovations). </li></ul><ul><li>The factors of Competitiveness (Innovations and Governance etc.) determine the magnitude of regional and international trade. </li></ul><ul><li>Without insuring Economic Freedom Trade enhancement cannot be achieved. </li></ul>Causality Analysis
  33. 34. Trade Barriers in South Asia <ul><li>Losses due to electrical outages and average time to clear exports through customs are identified as major hurdle in South Asia. </li></ul><ul><li>Extremely high non-tariff barriers in South Asia are observed. </li></ul><ul><li>Regulatory Environment in South Asia has also been identified as trade barrier. </li></ul>
  34. 35. <ul><li>The simultaneous relations show that the commerce departments and their associated institutions are not only responsible for the trade promotional activities. Regulatory framework and competitiveness are the catalysts for enhancement in trade relations. </li></ul><ul><li>For trade enhancement and liberalization the role of interior and foreign ministries are also important. Free Trade Agreements, Bilateral Treaties and Monetary Union can not achieve the targeted goals unless the interiors and foreign affairs ministries participate in these agreements. The roles of planning authorities, transportation and communication departments are also important in trade promotion among the nations. </li></ul><ul><li>At the time of agreements of the mutual economic relations, the recommendations of the planning commission, interiors and foreign affairs ministries and the concerned departments of the transportation and communication ministries must be incorporated. </li></ul>Dependency of Trade Relations on Freedom & Competitiveness
  35. 36. Thank You....

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