Reducing supply chain barriers increases world GDP

This report examines supply chain barriers to international trade and concludes that they are far more significant impediments to trade than tariffs. In fact, reducing supply chain barriers could increase world GDP over six times more than removing all tariffs. “Enabling Trade: Valuing Growth Opportunities” is a World Economic Forum report in collaboration with Bain & Company and the World Bank. The World Economic Forum’s Enabling Trade programme focuses on measuring whether economies have in place the necessary attributes for enabling trade and where improvements are most needed.

The report combines empirical macroeconomic analysis with a series of in-depth case studies on individual companies and industries. This groundlevel understanding informs a general set of lessons relevant to governments and companies as they attempt to promote trade and economic growth. The authors of the report offer specific policy recommendations with the lessons in mind.

Supply chain barriers

Reducing supply chain barriers to trade could increase GDP up to six times more than removing tariffs. They have been under managed by both countries and companies.

If every country improved just two key supply chain barriers – border administration and transport and communications infrastructure and related services – even halfway to the world’s best practices, global GDP could increase by US$ 2.6 trillion (4.7%) and exports by US$ 1.6 trillion (14.5%). For comparison, completely eliminating tariffs could increase global GDP by US$ 0.4 trillion (0.7%) and exports by US$ 1.1 trillion (10.1%). The estimates of the impact of barrier reduction are conservative; they reflect improvements in only two of four major supply chain categories.

Reallocating resources

Why is lowering barriers so effective? The reason is that it eliminates resource waste, whereas abolishing tariffs mainly reallocates resources. Moreover, the gains from reducing barriers are more evenly distributed among nations than the gains from eliminating tariffs.

Of course, reducing supply chain barriers requires investment, while tariff reductions require only the stroke of a pen. However, many barriers can be traced to regulation. Detailed analysis can enable policymakers to prioritize the investments that are most critical and cost-efficient.

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