Economic research and trade policy analysis
Acknowledgments
The Global Value Chain Development Report 2023, the fourth in the series, draws on contributions from 37 background papers presented and discussed at the First Authors’ Workshop for the Global Value Chain Development Report 2023 hosted by the World Trade Organization (WTO) during 7–11 November 2022.
Conclusions
This joint report has looked into the role of digital trade in development and how economies can work together to reap the full benefits of digital trade for a more resilient and inclusive global trading system.
Introduction
Trade has played an important role in fostering economic growth, promoting income convergence among economies and lifting hundreds of millions of people out of poverty (World Bank and WTO, 2015). The expansion of global value chains (GVCs) (ADB, 2021) has been a driving factor behind this growth. Some people, firms and economies have, however, missed out and not fully benefited from trade opportunities.
Estimating total trade finance assets: methodology
The estimation of the total value of trade finance in a country considers the relationship between bank assets in the country, based on published data, and trade finance assets identified in the survey. This relationship can take the functional forms of either a power law distribution or the asset variables can be proportional to each other.
Counterfactual analysis
The bank survey contains information on the costs of trade finance, the share of trade covered by trade finance and the trade finance gap. This information is used to generate projections of the trade effects of changes in the price and availability of trade finance. The WTO Global Trade Model (GTM), a computable general equilibrium model, is used to simulate the effects of changes in trade costs because of changes in the price and availability of trade finance. This annex describes the economic model employed, explores how the trade costs of financing international trade are modelled and outlines how trade finance shares and the costs of the trade finance instruments are calibrated in the baseline and counterfactuals.
Executive summary
Cambodia, the Lao People’s Democratic Republic (PDR) and Viet Nam – referred to here as the Mekong-3 – have established themselves as one of the most dynamic and trade-led regions of the world. In 2022, the value of trade flows surpassed GDP in all three economies. The trade-to-GDP ratio was particularly high in Cambodia and Viet Nam at over 210 and 185 per cent, respectively – several times higher than the global average of 62 per cent. The value of total trade flows has tripled in Cambodia and Viet Nam and more than doubled in the Lao PDR in the past decade.
Conclusions
The Mekong-3 – Cambodia, the Lao People’s Democratic Republic (PDR) and Viet Nam – are deepening their trade integration, increasing the volume and value of their exports and strengthening their participation in global value chains (GVCs). This expansion of opportunities for new traders in new markets generates expectations of growing demand for trade finance in the coming years.
Acknowledgements
This publication is the result of a joint effort of the IFC and the WTO and was prepared under the guidance of Susan Lund, Vice President of Economics at the IFC, and Ralph Ossa, Chief Economist of the WTO. Nathalie Louat and Denis Medvedev of the IFC and Marc Auboin of the WTO provided leadership for the research. Marcio Cruz, Maty Konte, Francesca de Nicola, Alexandros Ragoussis and Trang Thu Tran of the IFC and Eddy Bekkers and Alexei Timofti of the WTO managed the project teams across the two organizations. Working team members included: Karlygash Dairabayeva, Milagros Deza and Gianluca Santoni of the International Bank for Reconstruction and Development (IBRD); Stephanie Annijas, Gbenoukpo Robert Djidonou, Sarah Hebous, Ibrahim Nana, Alexander Vanezis and Ariane Volk of the IFC; and Kirti Jhunjhunwala, Saptarshi Majumdar and Ruoyi Song of the WTO.