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Predrag Bjelić, Ph.D.
Associate Professor of International Trade
Member of UNCTAD Virtual Institute
Faculty of Economics, University of Belgrade
Kamenička 6, 11000 Belgrade, Serbia
Phone: +381 11 3021 044
E-mail: bjelic@ekof.bg.ac.rs
Radmila Dragutinović Mitrović, Ph.D.
Associate Professor of Statistics and Econometrics
Faculty of Economics, University of Belgrade
Kamenička 6, 11000 Belgrade, Serbia
Phone: +381 11 3021 012
E-mail: radmilam@ekof.bg.ac.rs
Ivana Popović Petrović, Ph.D.
Teaching Assistant
Faculty of Economics, University of Belgrade
Kamenička 6, 11000 Belgrade, Serbia
Phone: +381 11 3021 046
E-mail: ivanapp@ekof.bg.ac.rs
ADMINISTRATIVE BARRIERS TO TRADE AS PREDOMINANT NONTARIFF BARRIERS IN THE WESTERN BALKANS TRADE
Mr. Predrag Bjelić is Associate Professor of International trade at the University of Belgrade, Faculty
of Economics in Serbia. He teaches International trade, Electronic commerce and EU Economics.
Bjelić was a Visiting Professor at many universities in Southeast Europe, member of UNCTAD Virual
Institute and WTO official expert. As a Trade Economist he has published several books and written
more than hundred scientific and expert papers on international trade policy, especially WTO meters,
Non-tariff barriers, EU integration and Electronic commerce. His academic visits include London
School of Economics, Harvard University and Faculty of Economics University of Oslo.
Ms. Radmila Dragutinović Mitrović is Associate Professor at the Faculty of Economics, University
of Belgrade in Serbia. She teaches Basics of statistical analysis (graduate courses), Econometrics of
cross section and panel data (master level), Statistical Methods (MBA Course of Texas A&M
University and Belgrade Faculty of Economics) Econometrics of panel data (doctorial level). She was
an academic visitor at the Faculty for Economics and Social Sciences, Department of Econometrics,
University of Geneva (2001 and 2008). Her main research areas are: econometrics of cross section and
panel data, applied parametric and non parametric statistical methods and models of international trade
and economic growth.
Ms. Ivana Popović Petrović is a Teching Assistant at the University of Belgrade, Faculty of
Economics in Serbia, at the Department of International Economic Relations. She has defended her
Ph.D. dissertation in april 2013 that deals with Administrative barriers to trade. She has published
several books and articles in the area of International Trade, International Business and Trade in
Agricultural Products.
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ADMINISTRATIVE BARRIERS TO TRADE AS PREDOMINANT NONTARIFF BARRIERS IN THE WESTERN BALKANS TRADE
Predrag Bjelić, Ph.D.*
Associate Professor of International Trade
Member of UNCTAD Virtual Institute
Faculty of Economics, University of Belgrade
Radmila Dragutinović Mitrović, Ph.D.
Associate Professor of Statistics and Econometrics
Faculty of Economics, University of Belgrade
Ivana Popović Petrović, Ph.D.
Teaching Assistant
Faculty of Economics, University of Belgrade
─ ABSTRACT ─
Non-tariff barriers are main obstacles to free trade today since tariffs have been reduced in the
context of GATT/WTO international trade regime. This trade policy instruments are a
heterogeneous group and are at a different level of international regulation. Technical barriers
to trade have been just partly regulated in WTO framework, while administrative barriers to
trade remain as a subgroup of non-tariff barriers still not regulated by WTO rules. Aim of our
paper is to explore the significance of subgroups of non-tariff barriers faced by some SouthEast European economies in their export. Our research is focused on countries still nonmembers of the European Union in the region of South-East Europe. These countries are on
their way to membership in this trade pact and the EU is their most important trade partner.
We explore the effects of non-tariff measures in intraregional trade, as well as in export of the
region to the European Union as its main export market. For that purpose we estimate gravity
model by using appropriate panel data econometric techniques. Our preliminary research
indicates that technical barriers to trade significantly reduce Western Balkan trade with the
EU. Administrative barriers are also important factor that affects Western Balkan economies’
trade with all observed trading partners. However, contrary to our expectation, these effects
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are not significantly higher for the Western Balkans’ intraregional trade, possibly due to still
strong positive influence of CEFTA integration.
Keywords: Non-tariff barriers, Administrative trade barriers, Trade, Western Balkans.
Introduction
One concept that can best describe the developments in international trade in the 20th century
is liberalisation of trade regimes. This process is carried out at all levels: bilateral, by signing
more and more free trade agreements; regional – by creation of more and more regional trade
integrations; and multilateral – through rounds of multilateral trade negotiations GATT/WTO.
Main instruments of trade policy, tariffs, have been significantly lowered as a result of
Rounds of Multilateral Trade negotiations carried under auspices of General Agreement on
Tariffs and Trade (GATT) after the Second World War, especially by the developed
countries. The average tariff rate in developed countries' tariff schedules was reduced to less
than 4% average at the end of 20th century. Also in the parallel process of regional trade
integration, many countries have gone even further with trade liberalisation with the
establishment of free trade areas and customs unions.
We can argue that due to these processes of trade liberalisation tariffs are no longer the most
important protective instruments of international trade policy. However, this significant
reduction in tariffs has not resulted in an equally significant liberalisation of the international
trade regime, as new protectionist instruments of trade policy appeared that obstruct
international trade, different from tariff, referred to as non-tariff barriers.
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Non-tariff barriers are a very heterogeneous group of measures, since their only communality
is that they are different from tariffs. The mechanism of their effects can be quantitative, price
effective or administrative. Bjelić in his 2013 chapter proposed classification of non-tariff
barriers in three broad groups:
1. Traditional non-tariff barriers, which include quantitative barriers, subventions,
antidumping measures, compensatory measures, local content requirement measures and
public procurement;
2. Technical non-tariff barriers, which include non-tariff measures that appear in
international trade due to differences in national standards and technical regulation;
3. Administrative non-tariff barriers, which include all barriers to trade that are derived from
national laws and regulations and administrative procedures that curtail international trade.
Some forms of non-tariff measures are very old and can be traced to the beginning of trade
exchange between nations. But non-tariff barriers were not visible until tariffs were removed
as prime trade policy instruments.
Some of the non-tariff measures have been recognised and regulated by GATT rules during
the second half of the 20th century. This means that the use of some of these measures - like
quantitative restrictions (quotas) - has been forbidden for GATT 1947 signatories, while the
use of other measures from this group was allowed but only if strict rules which regulate their
proper use are observed - like anti-dumping measures or compensatory measures. The nontariff barriers, recognised and regulated by GATT 1947 are referred to as traditional non-tariff
barriers (Bjelić 2009).
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Many of the non-tariff measures that were not regulated by GATT 1947 are only partially
regulated in the WTO legal framework, like technical barriers to trade, or still not regulated,
like administrative barriers to trade. With the establishment of the WTO Agreement on
Technical Barriers to Trade (TBT agreement) some ground principles have been adopted
related to regulation of technical barriers to trade in the WTO but this is not an obstacle for
WTO members to introduce new technical regulations. The third group of non-tariff barriers administrative barriers to trade - is the only group that is still unregulated by the WTO rules.
This is the reason why these two groups of non-tariff barriers are still widely used as
protective instruments in trade policy of many countries.
In this paper we explore the use of technical and administrative barriers in trade of Western
Balkans nations trade. We are focused on countries in this region that are still non-members
of European Union (EU)1 and examine trade flows between these countries and the EU as
well as their intraregional trade flows. Countries members of the EU follow Common Trade
Policy and represent single customs territory in international trade. We use the gravity model
to estimate the effects of particular groups of non-tariff measures on bilateral trade flows of
Western Balkan countries in the period 2006-2011. The estimation is based on panel data
econometric techniques.
1. Technical and Administrative barriers to trade
Technical barriers to trade (TBT) appear since countries have different technical regulations
and national standards. Some of these different standards developed long time ago and
1
These countries include: Albania, Bosnia and Herzegovina, Croatia, Montenegro, Macedonia (FYR) and
Serbia.
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represent obstacles in trade that are present for centuries and that traders learn how to
circumvent. But now more and more countries introduce new standards and technical
regulations since there are more products exchanged globally.
Main principle in regulation of technical barriers to trade in WTO is that countries cannot
introduce new technical regulations that obstruct international trade. But WTO member
governments continue to adopt always new technical norms, every day. After the
establishment of WTO in 1995 member governments have an obligation to notify the WTO
on all newly adopted technical regulations. We can observe that the number of adopted new
technical regulation is rising from 1995 and reaches the peak in the period of world economic
crisis (2009-2010).
Figure 1: Notification to WTO by member countries on Newly Adopted Technical
Regulations
Source: WTO, G/TBT/33, 2013.
Many of the measures that are considered technical or administrative non-tariff measures are
necessary for facilitation of transfer of goods and services in international trade in order to
protect the health, well-being and security of people and the environment and they are
recognised as legitimate measures by the WTO. But some of these measures can be abused in
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order to protect the domestic producers from foreign competitors. The existence of these
WTO unregulated trade policy measures creates the risks in international business that goods
and services cannot move across national border,s or that they move inefficiently and at
significantly higher costs.
Administrative barriers to trade (ABT) are a heterogeneous group of non-tariff barriers to
international trade, especially visible at the beginning of the new century. Although its usage
is intensified in last twenty years, many authors have spotted its influence on the international
trade many decades ago. Baldwin in 1970 named them ―administrative hindrances to trade‖,
defining them as many formalities appearing in the relation with the implementation of a
customs procedure. In practice they appear as increasing demands for excessive
documentation and in the form of customs procedures delays. Their existence is connected
with cumbersome and unnecessary bureaucracy and the high transaction costs, which increase
by expediting customs procedures.
Generally, these barriers are connected to border procedures in international trade, but also
can be administrated in the country. Developing countries usually have less efficient customs
and other border agencies, but developed countries can cause administrative barriers to some
type of good for protectionist reasons. Administrative barriers in international trade,
according to UNCTAD, could be classified in many groups, showing all heterogeneity of
these barriers: requirements for a large number of documents in paper form, complicated and
time-consuming procedures in the realization of external trade, lack of transparent rules and
obligations for participants in international trade, multiple controls at border crossings, as well
as insufficient transport connections (UNCTAD 2009). Usually administrative barriers to
trade are classified in two broad groups: procedural and legal barriers to trade.
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Administrative barriers in international trade are observed by several international
organisations (Bjelić 2012) but most popular are Trading Across Borders Indicatiors
published annually in World Bank Doing Business Report. We can see that generally
developed countries (OECD high income countries) are very effective in export and import
procedures, where customs clearance last for only a few days. On the other hand, developing
countries are less efficient in export/import procedures, since these procedures can last more
than one month and customs clearance can last 5 days. On the following picture we can
observe that there are big differences in different regions of the world in efficiency in
export/import procedures.
Figure 2: Large decline in document preparation time across world regions
Source: World Bank, Doing Business 2013—Smarter Regulations for Small and Medium-Size Enerprises,
International Bank for Reconstruction and Development/World Bank, Washington, 2013, Figure 16.3, p. 89.
The most common measures among the measures and steps taken to facilitate and to
contribute the process of shortening the time required for export in different regions during
the period 2007-2013, are measures in the field of document preparation, mostly like
electronic submission and processing of customs declarations, implemented in 110
economies. At the second place are measures including fastering the proces of customs
clearance and technical controls, in a few words-improvement of customs administration. One
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special feature of Eastern European and Central Asian countries is important improving of
inland transport as the source of facilitating trade flows and decreasing the role of
administrative procedural non-tariff barriers. This region is also well-known as one region
more, introducing and improving a risk-based management in customs procedures (World
Bank, 2013, p.89).
Administrative procedural non-tariff barriers to trade, according to some authors are
associated with slowing trade flows due to the application of some unnecessary customs
formalities. They are usually closely connected to customs clearance procedure which can be
very inefficient. These barriers arise as the result of not efficient and effective enough work of
customs services and other services whose work is also associated with the customs
procedure. The problems with their work appear as the result of two factors: low levels of
trade capacity in some countries and due to the existence of a clear intention to make
imported goods uncompetitive. One of the examples is complaints on the customs
classification done by the customs officers (Fliess & Lejarraga, 2005). But classification of
administrative procedural non-tariff barriers usually lists these barriers: application of rules of
origin, procedures for issuing import licenses, preshipment inspections of goods, customs
valuation practices, Sanitary and phytosanitary measures application and special customs
formalities.
If the realization of export, or import procedures becomes more slowly, or more costly than it
really needs to be, it becomes a great disadvantage for local traders to be competitive at
international markets. Decrease of the administrative procedural non-tariff barriers use, means
improving trade process and it gives a great opportunity, especially to developing countries,
to integrate themselves in international trade flows. In the WTO the Trade Facilitation
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initiative was launched to regulate administrative barriers to trade and this is one of the main
issues negotiated at a new round of multilateral trade negotiations (Doha round).
2. Western Balkans countries’ trade and technical and administrative barriers
In South-East European non-EU member countries` (referred to as the Western Balkans) 2
trade, the most important trading partner is the EU with its 27 member countries. But also the
important trade flow is the intraregional trade in the Western Balkans region. Countries of this
region, non-EU members, have their own regional trade integration, created by the revised
Central European Free Trade Agreement signed in 2006 (CEFTA 2006)3. This agreement
creates a free trade area in the region for goods.
Western Balkan export is mainly dependent on the demand from the EU countries because
almost the half of their exports (from 41.67% to 46.79% depending on a country for the 20062011) is directed to the EU-15 countries (Figure 3). Intraregional trade is very important for
all the countries, for Montenegro and Bosnia and Herzegovina at the import side and for
Croatia and Serbia at the export side. Intra-regional exports of Western Balkan countries have
reached the share in their total exports of almost 30% in 2008. CEFTA 2006 integration has
shown big resilience in the period of world crisis and this points out the importance of making
trade as easier as possible.
Figure 3: Exports of Western Balkans countries by main trading partners in 2011,
2
3
These countries in the EU official documents are reffered as the Western Balkan Economies.
The signatory of CEFTA 2006 beside countries in our sample is also Moldova.
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EU
CEFTA 2006
RoW
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
Alba nia
BiH
Croa tia
FYRM
Serbia
Source: Authors’calculations based on UN Comtrade database.
As in the rest of the world non-tariff barriers are becoming most relevant in the Western
Balkans trade. With the decreasing the impact of these barriers on trade Western Balkans
countries’ will get new opportunities for the trade increase. But the application of different
groups of non-tariff barriers differ between countries. Conserning the countries in the focus of
our research in this paper, the Western Balkan economies, it is very hard to estimate the
influeance of technical and administrative barriers to trade in this region. The problem is that
many countries in the region are not WTO members, so they have no obligation to notify this
organisation on all new TBT. In our research, we use the data on all standards that these
countries harmonise with the European standards (ENs) which lead them to have technical
barriers similar like the EU. Similar situation is with administrative barriers to trade since
many of the countries of the region in focus of the research have been in the conflict and
political turmoil, so many did not reported data, even to organization which are UN
specialised agencies, like the Word Bank.
But there are several studies on non-tariff barriers in the region that use the questionner to get
the view of business community in the region. The latest research have been realised under
the auspices of OECD. Concerning the technical barriers to trade in the region of CEFTA
2006 signatoriy countries the OECD research show that countries from the region more
advanced in the process of accession to the EU, have adopted more EU standards and have
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the higher presence of technical barriers to trade. These countries are Croatia, Macedonia
FYR and Serbia. All other countries except Albania are below CEFTA average.
Figure 4: Overall scores for technical and administrative barriers to trade in CEFTA 2006
region
Technical barriers to trade
Administrative barriers to trade
Source: Scores are based on the results of the 2011 OECD assessment conducted on the basis of the ―Multilateral
Monitoring Framework (MMF) on the elimination of the Non-Tariff Barriers in CEFTA 2006― and have been
published in: OECD/CEFTA, limination of Non-Tariff Barriers in CEFTA, CEFTA Issues Paper 4, 2012,
Figure 1.8, p. 41 and Figure 3.11, p. 81.
In the case of administrative barriers, the figure shows different levels that CEFTA countries
have reached in the administrative barriers reduction. Serbia, Croatia and Macedonia are
above the regional average, while the Bosnia and Herzegovina and Albania expect intensive
adjustments with the aim to decrease the impact of administrative procedural non-tariff
barriers. These improvements mean that CEFTA countries have increased transparency of
publications, of some decisions in advance, in the way they introduce fees, procedures, lead
all services associated with the work of the customs service, as well as the decisions taken in
the event of appeal. These countries improved the risk management system and filling
documents electronically.
Similar research carried out in the region has shown that exporters from West Balkan
countries, exporting to countries of EU mostly face barriers from the group of technical non-
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tariff barriers (OECD 2005). Contrary, when exporting to other Western Balkan countries
exporters from this regions face barriers connected with customs procedures i.e.
administrative barriers to trade, while technical standards and certification takes third
possition. It seems that among all non-tariff barriers, the administrative barriers to trade have
the most negative impact on the intraregional trade.
Table 1: Ranking of barriers faced by Western Balkans exporters, by market, 2004
Ranking (by
importance of
barrier)*
1
EU Market
South-eastern European
market
Technical standards and
Customs procedures
certification
2
Quality control and consumer
Bureaucratic registration
protection
3
Customs barriers
Technical standards and certification
4
---
Quality control and consumer
protection
Notice: * The author of this table noticed that: „In descending order by degree of importance. Items in this surve
not related to TBTs, customs and administrative procedures are omitted from this table (and indicated by - - - )―.
Source: Adapted from OECD (2005), based on Western Balkan survey (2004), Internet:
www.oecd.org/dataoecd/25/31/43892876, (04.06.2011.).
The results of this research are the base to formulate the hypothesis of our research – the
exporters from the region of Western Balkans face technical barriers to trade as most
predominant barriers when they export to EU market and predominant barriers in
intraregional exports are administrative barriers to trade. This hypothesis will be tested
empirically using the gravity model.
3. Trade effects of non-tariff barriers – evidence from Western Balkan countries
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Empirical analysis in this paper is focused on Western Balkan countries, in the process of
joining the European Union (EU).4 To the best of our knowledge, this is the first attempt in
empirical literature to deal with trade effects of non-tariff barriers in case of the Western
Balkans. Although most of estimated gravity models have analysed the effects of NTB on
disaggregated levels (sectors, product groups, etc.), the aim of this analysis is to shed some
light on these effects in determining bilateral trade flows of Western Balkan countries on
aggregate level, so the results should be taken as preliminary. Particular intention in this part
is to estimate the effects two groups of NTB: technical barriers to trade (TBTs), as important
in the Western Balkans trade with the EU, as well as administrative barriers, as predominant
in the Western Balkans intra-regional trade.
3.1. A brief overview of the empirical literature and methodology
In the recent past, there is increasing interest in quantitative estimation of the NTMs effects
on trade. However, this estimation is rather difficult due to scarcity of NTMs data (Beghin
and Bureau, 2001). The empirical literature has used different approaches to estimate trade
effects of NTMs: from price wedge method, inventory based approaches, over survey based
approaches, risk assessment based cost-benefit measures, to gravity model approach
(Bellanawithana, A., et al., 2011). From all mentioned approaches, our analysis is based on
gravity model estimation of the effects of technical and administrative barriers in determining
trade flows from the Western Balkans toward their main trade partners.
Gravity model of international trade is one of the most popular empirical tools in the
literature, used for different purposes. Traditionally, it was used to explain bilateral trade
4
The Western Balkans includes Albania, Bosnia and Herzegovina, Croatia, Former Yugoslav Republic of
Macedonia, Montenegro and Serbia.
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between countries by their economic sizes and distance between their economic centers
(Tinbergen, 1962). Later, this empirical specification has been augmented by other factors
reflecting various trade promote factors and trade impediments (for instance, the effects of
common language and border, free trade agreements, currency unions, etc.). 5 During the last
decade of the previous century, the model has been often used to calculate trade potentials
between Central Eastern European countries and the EU (for instance, Wang and Winters
1992). Its another main purposes were to evaluate trade effects of regional trade
arrangements, trade preferentials or the currency union (Frankel and Rose 2000, Faruqee
2004, Baier and Bergstrand 2007, Bussiere et al. 2008). Finally, the majority of the recent
literature builds upon the results of Anderson and van Wincoop (2003) who included the
effects of multilateral resistance factors.
Focusing on the NTBs effects on bilateral trade flows, it seems that gravity model approach is
―a promising area of research‖ (Beghin and Bureau, 2001). Most of the literature based on
gravity equation has recognised these measures as one of the greatest impediments to trade for
a number of developing countries, particularly in several sectors such as agricultural and food
(Disdier, Fontagné and Mimouni, 2008). The trade impact of Sanitary and Phyto-Sanitary
(SPS) and Technical Barriers to Trade (TBT) measures notified by importing countries under
the SPS and TBT agreements in agricultural trade is analysed in Disdier, Fontagné and
Mimouni (2008). Their results of gravity model estimation indicate that these measures
significantly decrease developing countries’ exports to OECD countries, but do not affect
intra-regional trade of OECD members. On the other hand, Moenius (2004) does not find that
the number of country-specific standards of importers reduces trade on average, but on
5
On the other hand, there also are a number of trade theory based specifications of gravity model, such as those
derived by Anderson (1979), Helpman (1987), Bergstrand (1989), Anderson and van Wincoop (2003) and so on.
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sectoral level. For instance, it reduces imports for non-manufactured goods, such as
agriculture, but promotes trade in manufacture sector.
Due to lack of data, TBT is the most difficult NTBs to quantify. That is why different
variables for SPS and TBT are used as proxies in measuring them in empirical literature (for
instance, Bao and Qui, 2010; Fontagné et al. 2005). To measure SPS and TBT, Disdier,
Fontagné and Mimouni (2008) consider the following variables: dummy variable taking value
one if the importing country notifies at least one barrier at the six-digit level of the HS
classification, frequency index (the share of HS6 product items notified by importing country
within a HS4 product category) and ad-valorem equivalent as a price-comparison measure.
The last mentioned measure is firstly used in Kee, Nicita and Olaregga (2009) as a
transformation of all information on the non-tariff barriers into a price equivalent. Their
results indicate that developing countries tend to have more restrictive trade policies and face
higher trade barriers on their exports.
Bao and Qiu (2010) consider TBT to have both trade promotion and trade restriction effects.
They estimate the impact of TBT imposed by China on the country’s imports. Using the
frequency index, the authors find that TBT are significantly trade restrictive, but using
coverage ratio, the negative impact of TBT seems to be insignificant. However, on sectoral
level China’s TBT (proxied by both mentioned measures) are trade promoting for
manufacturing goods, while trade restrictive for agricultural products. Bellanawithana et al.
(2011) also use gravity model to measure effect of NTBs on agricultural exports
quantitatively, focusing on South Asian countries and listing different frequency type
measures like number of restriction, frequency ratios, and import coverage ratio as possible
ways to encompass the NTBs. Compared to these indicators, they suggest as superior the
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difference between tariff trade restrictiveness index (TTRI) and the overall trade
restrictiveness index (OTRI) to obtain the tariff equivalent of NTMs, i.e. to capture the effect
of non tariff measures.
Concerning administrative barriers to trade, Zaki (2010) introduces trade facilitation and first
estimates predicted time to export and to import, involving it in gravity model to determine its
bilateral trade effect. The conclusion is that bureaucracy, corruption and geographic variables
significantly influence transaction time to export and to import, but time to import has a
higher negative impact on trade than that time to export. Hornok and Koren (2012) build on
Anderson and van Wincoop gravity specification (2003) and estimate the effects of
administrative trade barriers by including importer-specific trade costs variables, like the time
in days and the cost of administrative procedures in the importer country (from Doing
Business database).
In the estimation of trade effects of NTMs by using gravity model, the econometric
techniques of panel data are often used (for instance, Moenius, 2004 or Bao and Qiu, 2010)
due to well known advantageous over cross-sectional econometric analysis. Among all
estimation methods, the most of empirical papers relies on different fixed effects
specifications (bilateral or importer and exporter, as well as time effects), which we also use
in our empirical analysis.
3.2 Model, data and variables
In case of Western Balkan countries, after the period of trade liberalisation (firstly through
Autonomous Trade Measures granted by the EU, and later through regional free trade
integration - CEFTA 2006), non-tariff barriers have become one of the most important
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impediments in their trade with the EU and among them technical barriers particularly.
Furthermore, along with CEFTA 2006 entry the force, the administrative barriers among
members seemed to become more important. Hence, an interesting question is to what extent
these two parts of NTBs influence the Western Balkans trade.
We start with augmentative gravity model of six Western Balkan countries’ trade flows
toward 30 trading partners in the period 2006-2011, which gives in total 1080 panel
observations.6 For the sake of estimation the effects of our main NTB variables, we use the
following specification of the gravity model based on panel data:
ln X ijt
0
1
ln GDPit
8 TBT
_ EU jt
2
ln GDP jt
9 TBT
_ Cefta jt
3
ln POPit
10 ADM it
4
ln POP jt
11 ADM
5
ln Dij
_ Cefta it
6 Borderij
ij
t
u ijt
7 SAAit
(1)
Variables in the model (1) are as follows: Xijt is export flows from Western Balkan country i
to trading partner j in the year t; GDPit and GDPjt are standard gravity model variables of
gross domestic products of countries i and j in the year t, representing the level of exporter
supply and importer demand. POPit and POPjt are population variables of countries i and j in
the year t, while Dij represents geographical distance between main economic centres of
countries i and j, as a proxy for transport and transaction costs. Dummy variable Border
measures the effects of common border to bilateral trade, taking value 1 if countries have
common border and 0 otherwise. The effect of Stabilization and Association Agreement
(SAA) on bilateral exports of Western Balkan countries toward the EU is captured by dummy
variable SAAit, taking value 1 for the period of its entry into force and zero otherwise.7
6
Export from each Western Balkan countries to the EU 25 (EU-15 plus EU new members except Malta and
Cyprus) and other West Balkan countries. The list of countries and starting year are determined by the
availability of the data on the NTB measures.
7
SAA dummy variable takes value 1 for the whole observed period for FYR Macedonia and Croatia for which
SAA entered into force in 2004 and 2005, respectively, for Albania from 2009 and for Montenegro from 2010.
In case of Bosnia and Herzegovina and Serbia, SAA has not entered into force yet, but Interim Agreement on
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Data source for exports measured in million USD is UN Comtrade database. Data on GDP in
million USD and GDP deflator data to create real GDP variables are taken from the IMF
World Economic Outlook database. Data on geographical distance between economic centres
of two countries in kilometres are from the website: www.worldatlas.com. Dummy variable
SAA is created on the basis of the information from European Commission website.
The main source for NTB data often used in the literature is UNCTAD’s TRAINS which
contains detailed information on different types of NTBs. However, these data for countries
of the Western Balkans (especially the detailed NTBs data on sectoral levels) are rather
scarce, so that we have to use another, also relevant source. To create variable TBT we use
Integrated Trade Intelligence Portal (I-TIP) that provides all information compiled by the
WTO on trade policy measures. This variable represents number of TBT measures imposed
by countries importing from Western Balkan countries. Since there is a lack of these data for
the most of Western Balkan countries as non-WTO members, we only considered TBT
measures imposed by the EU countries, through variable TBT_EU. Additionally, we try to
capture missing information on TBT notification for Western Balkan countries indirectly by
including number of the EU standards adopted by each country for the period of CEFTA2006
entry into force (variable TBT_Cefta).8
Focusing on administrative barriers, we use Doing Business database of the World Bank and
within it the section ―Trading across borders‖. We experimented with the following variables:
(1) time to exports and to imports (expressed in calendar days) reflecting the period from the
trade and trade-related issues is entered into force. Therefore, for these countries, SAA variable takes value 1
from 2008 and 2010, respectively.
8
The variable represents the number of standards for each Western Balkan country, whereas takes value 0 for
other countries. The calculation of the contribution of CEFTA2006 integration in this paper is not possible since
it the year of its application coincides with the starting year of our sample period.
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moment a procedure is initiated until it is completed, and (2) number of documents to exports
and to imports and (3) costs to export and to imports (in USD per container).9 However, time
to exports and to imports are used in our analysis since other measures like number of
documents do not show enough statistical variability to be used as explanatory variables in the
gravity model.
3.3 Empirical results
Panel data gravity model (1) is used to estimate trade effects of TBT and administrative
barriers imposed by importer countries which import from the Western Balkan region.
Following the econometric techniques usually used in the most of empirical literature, we
start with both fixed and random specifications of gravity model. Most of empirical
applications use country-pair (bilateral) or both exporter and importer fixed effects along with
time effects to control variability across observed countries and period. In that way,
heterogeneity across individuals and over time period is included, though the error term may
still suffer from heteroscedasticity implicating that relevant tests used within panel data
framework are not valid. Hence, robust estimations of fixed and random gravity equations are
obtained in this paper. Estimation results of our starting specifications are given in the
following Table.
Table 2: Results of gravity model estimation
Regressor
GDPit
GDPjt
POPit
POPjt
Dij
Borderij
(1) RE model
(2) FE model
(random bilateral (fixed bilateral
effects)
effects)*
1.673 (0.000)
1.543 (0.000)
0.408 (0.207)
0.585 (0.004)
0.272 (0.211)
0.340 (0.121)
1.255 (0.015)
0.513 (0.024)
-1.240 (0.038)
-1.941(0.000)
0.684 (0.142)
0.556 (0.177)
9
(3) FE model
(fixed bilateral
and time effects)*
1.571 (0.000)
0.611 (0.003)
0.314 (0.166)
0.489 (0.033)
-1.938 (0.000)
0.557 (0.151)
(4) FE model (fixed
bilateral and time
effects)*
1.592 (0.000)
0.574 (0.030)
0.300 (0.100)
0.606 (0.015)
-1.796 (0.000)
0.583 (0.046)
Detailed explanation of methodology and variables measurements can be found on the following website:
http://www.doingbusiness.org/methodology/trading-across-borders.
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SAAit
0.074 (0.525)
0.103 (0.399)
0.106 (0.389)
TBT_EUit
-0.008 (0.064)
-0.011 (0.005)
-0.010 (0.055)
-0.016 (0.016)
TBT_Cefta
-0.00006 (0.341)
-0.00002(0.309)
-0.00001(0.778)
Adm
-0.138 (0.000)
-0.137 (0.000)
-0.142 (0.000)
-0.137 (0.000)
Adm_Cefta
0.014 (0.463)
0.041 (0.138)
0.050 (0.110)
Constant
-10.049 (0.009)
-4.383 (0.024)
-4.733 (0.016)
-4.553 (0.032)
Number of observations
1080
1080
1080
1080
Bilateral effects
yes
yes
yes
yes
Fixed time effects
no
no
yes
yes
R2
0.564
0.6831
0.6859
0.6788
Hansen statistic
217.874 (0.000)
F statistic - fixed
8.16 (0.000)
8.09 (0.000)
8.68 (0.000)
country-pair effects
F statistic – fixed time
5.98 (0.000)
4.56 (0.003)
effects
Honda statistic - country16.005 (0.000)
pair random effects
* Time-invariant variables Distij and Borderij are obtained in the second step of FE estimation procedure.
Note: p-value is reported in the parentheses. Robust standard errors are calculated using Huber-White-sandwich
VCE estimator.
Random effect (RE) specification is estimated by using error-component generalised least
squares (EC-GLS) method, whereas fixed effect (FE) model is estimated using the within
estimator. Testing results in both specifications indicate that bilateral effects have to be
included to capture heterogeneity across country-pairs: values of both F statistic of individual
effects in FE and Honda statistic of individual effects in RE model are significant (Columns
(1) and (2) in Table 2). Conditional testing (assuming bilateral effects in both RE and FE
specifications) confirms that time effects should also be included as fixed.
All specifications are estimated with robust standard errors. Hence, to test fixed vs. random
effects (i.e. singly exogeneity problem in the RE model), we employ modified
misspecification test robust to heteroscedasticity, that is Hansen statistic of overidentifying
restriction (Wooldridge 2010). 10 The test rejects null hypothesis on uncorrelated bilateral
effects with regressors, and RE estimates seem to be biased. In those conditions, the literature
suggests the usage of within-group estimator for FE model to avoid bias estimates due to
10
This test can be observed as a test of fixed vs. random effects, since FE estimator uses the orthogonality
conditions that the regressors are uncorrelated with the error disturbance uijt while RE estimator uses the
additional orthogonality conditions (overidentifying restrictions) that the regressors are uncorrelated with
bilateral effects ij. Under homoscedasticity, this test statistics is asymptotically equivalent to the original
Hausman test.
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correlation between regressors and bilateral effects (for instance, Bussiere et al. 2008). On the
other hand, this choice arises the problem of time-invariant variables estimation, such as
distance and border in the model (1). For these variables, we can get either consistent
estimates of regression coefficient within FE specification by applying two-step procedure, or
even efficient by estimation RE specification by instrumental variable estimator (HausmanTaylor, Amemiya-McCurdy or Breusch-Mizon-Schmidt estimator). To obtain efficient
estimates, we experimented with several sets of instrumental variables defined by mentioned
estimators. However, in all cases Sargan-Hansen over-identification test rejected null
hypothesis that the chosen sets of instruments are valid. Therefore, the only consistent
estimates one can obtain within the FE estimator framework. We use two-step procedure
purposed by Cheng and Wall (2005) and Bussiere et al. (2008): (1) apply within-estimator to
get FE estimates and (2) regress within residuals averaged over time (obtained from the first
step FE estimation) on time-invariant explanatory variables. 11 Final estimation results are
given in the last column of Table 2.
As it is expected, there is positive impact of GDP of exporter and importer countries on the
Western Balkan bilateral exports. Population number of importer country as a measure of
market importance also indicates significant positive trade effects. Conversely, distance
variable as a proxy of trade impediment factors like transport and transaction costs, has
significantly negative impact on exports of the Western Balkans. Concerning other regressors,
border effects are also significant in case of the Western Balkans, but the effect of SAA does
not seem to be significant. This result may be expected since these countries have already
experienced main benefits in trade earlier through effects of ATMs.
11
This procedure gives consistent estimates of regression parameters providing that time-invariant variables are
not correlated with fixed bilateral effects as it is the case in our model.
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Regarding effects of TBTs and administrative trade barriers which are in the focus of this
paper, the results are as follows. As stated earlier, in the period of trade liberalisation in the
Western Balkan region, TBTs appears as important impediment. TBT measures imposed by
the EU countries seem to have significantly negative effect on bilateral exports of Western
Balkan countries: increase in number of TBT measures by one decreases the exports by 13%.
However, judging to variable TBT_Cefta as a proxy of TBT measures for the Western
Balkans in the period of CEFTA2006 entry into force, it appears that these measures does not
affect bilateral trade between Western Balkan countries. But this result has to be interpreted
with caution, since the number of the EU standards adopted by Western Balkan country may
be inappropriate proxy for TBT measures. Furthermore, administrative barriers measured by
time to exports also significantly affect bilateral trade of Western Balkan countries with all
observed trading partners: one day increase of time to exports lower their exports by 1.6%.
However, our hypothesis about significantly higher trade effects of administrative barriers
among CEFTA 2006 signatories compared to the whole sample is not confirmed by the
gravity model (insignificant variable Adm_Cefta). There may be at least two explanations of
this result: first, the trade benefits from CEFTA integration are still predominate over trade
impediments in the observed period, and second, the measure of administrative barriers used
in this paper may not be appropriate proxy for complex set of administrative barriers.
Conclusions
The non-tariff barriers are becoming prime obstacles in international trade as tariffs are
significantly reduced in multilateral trade negotiations. Some of the non-tariff barriers have
been regulated during the GATT 1947, reffered as traditional non-tariff barriers, but other
non-regulated non-tariff barriers in GATT/WTO system, as technical and administrative
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barriers, serve as important protectionist measures in use today. The Western Balkan
economies trade extensively with the European Union but also intraregionaly within CEFTA
2006 integration. Some researches show that the application of non-tariff barriers differs
depending on a target market. Namely exporter countries are generally differently affected by
TBTs and administrative trade barriers which depends on the structure of their export
products and markets.
For Western Balkans our analisys indicates that technical barriers to trade are main barriers
when goods are exported to the European Union. Administrative barriers are also important
factor that affects Western Balkan economies’ trade with all observed trading partners, but
these effects are not significantly higher for the Western Balkans’ intraregional trade. The
reason is possibly that there are still strong positive influence of CEFTA2006 integration in
the observed period. Our analysis is the first attempt in the empirical literature to measure
effects of NTBs on bilateral trade of the Western Balkans by using gravity model. Hence, it
provides us only with some general and preliminary results, and requires further, more
detailed analysis on disaggregated level in order to identify more appropriate measures for
NTBs of the Western Balkan countries specially when statistical data for this region is scarce.
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