Trade facilitation in the Arab region

This chapter aims to assess the progress of trade facilitation in the Arab region, and subsequently tests the effect of trade facilitation on bilateral trade flows within this region. The findings support the fact that the performance of Arab countries’ logistics systems in general is still weak and needs to be improved, as indicated by the World Bank’s Logistics Performance Index (LPI). Vast divergence and discrepancies among Arab countries can be observed because of differences in income levels and geopolitical conditions. Hence, while some Arab countries try to develop logistics activities to take advantage of opportunities, seeking to establish regional logistics platforms, others are not only ranked among the lowest on the overall index, but are also near the bottom of the list for the different components of the LPI. The estimations presented here suggest that trade facilitation has positive impacts on intra-regional trade but that its scope is rather limited. Indeed, an improvement in trade facilitation (LPI score) of the exporting country by 1 per cent increases trade flows by 0.7 per cent. This impact could be higher and reach more than 2 per cent when sensitivity analysis is included. An improvement in trade facilitation (LPI score) of the importing country by 1 per cent boosts trade flows by 0.66 per cent. The results of this chapter show that there are slight gains in trade to be made from improving trade facilitation in Arab countries. Despite the fact that the overall LPI score is significant for both exporting and importing countries, the magnitude of that significance is relatively small compared with previous research findings regarding the same measures in other regions. However, the study suggests that trade facilitation could have a greater impact on trade among Arab countries and with other regions and underlines the importance of developing transport and physical infrastructure to enhance regional integration and trade cooperation.