Export performance of developing countries: Does landlockedness matter?

• DOI: http://doi.org/10.1111/rode.12389
• Author: Arusha Cooray,Ramesh C. Paudel
• Published date: 01 August 2018
• Date: 01 August 2018

REGULAR ARTICLE

Export performance of developing countries: Does

landlockedness matter?

Ramesh C. Paudel

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Arusha Cooray

1,2

1

Arndt–Corden Department of

Economics, Crawford School of Public

Policy, Australian National University,

2601, Canberra, ACT,Australia

2

Business School, University of

Nottingham, Malaysia

Correspondence

Ramesh C. Paudel, Arndt–Corden

Department of Economics, Crawford

School of Public Policy, Australian

National University, 2601, Canberra,

ACT, Australia

Email: Ramesh.paudel@anu.edu.au

Abstract

Landlockedness imposes additional costs on trade and

reduces international competitiveness. This paper exami-

nes the determinants of export performance in developing

countries, within a comparative perspective of landlocked

developing countries (LLDCs) and non-landlocked devel-

oping countries, by using a standard gravity modeling

framework. The study covers data from 1995 to 2015.

The results suggest that despite recent trade policy

reforms, the overall export performance of LLDCs is

lower than that of non-landlocked developing countries

due to the inherent additional trade costs associated with

landlockedness. The conventional wisdom that export

performance is aided by economic openness also applies

to LLDCs, but distance-related trade costs have a greater

negative impact on exports from LLDCs than on other

developing countries. The immediate trade policy chal-

lenge for LLDCs is therefore to create a more trade-

friendly environment by lowering tariffs, reforming

exchange rates and entering into regional trade agree-

ments.

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INTRODUCTION

In 2015, landlocked developing countries (LLDCs) accounted for 0.6 percent of world exports and

7 percent of the world’s population, while non-LLDCs accounted for 34.4 percent of exports and

78 percent of the world’s population. Developed countries account for the rest of exports and 15

percent of the world population. In 1995, exports from LLDCs accounted for 0.3 percent of world

DOI: 10.1111/rode.12389

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exports, compared to 17.6 percent from non-LLDCs. Per-capita non-oil exports of LLDCs in 2015

were a mere US$175, compared to US$843 for non-LLDCs (World Bank, 2016a). These statistics

indicate that landlockedness may be an important factor in explaining the low export performance

of LLDCs. If landlockedness does matter for export performance, how do landlocked countries

compare with those that are not landlocked? This is an issue that warrants empirical investigation.

The literature highlights the importance of export-led growth (Weiss, 1999: Greenaway, Mor-

gan, & Wright, 2002; Balassa, 1985; Krueger, 1990; Santos-Paulino & Thirlwall, 2004; Awokuse,

2008; Athukorala, 2011). In particular, the East Asian Miracle led to increased support for this

hypothesis (Stiglitz, 1996). Despite the importance of trade for economic growth, other factors

such as geography could also play an important role. This was observed by Adam Smith as far

back as 1776 (Radelet & Sachs, 1998). In this study we focus on landlockedness.

Studies show that modeling exports is difficult in the case of LLDCs due to higher costs of

production (Arvis, Raballand, & Marteau, 2007; Radelet & Sachs, 1998). Studies also suggest that

landlocked countries face higher trade costs and lower trade volumes than non-landlocked coun-

tries (Faye, McArthur, Sachs, & Snow, 2004; Silva & Tenreyro, 2006; Behar & Venables, 2011;

Coe & Hoffmaister, 1999; Lim~

ao & Venables, 2001). The studies of Arvis et al. (2007), Grigoriou

(2007), and Faye et al. (2004) examine the effect of landlockedness as one of many variables on

trade. Arvis et al. (2007) use a supply chain approach put forward by Baumol and Vinod (1970).

The Faye et al. (2004) study is a descriptive analysis. The emphasis of the Raballand (2003) and

Grigoriou (2007) studies is on Central Asia.

The existing literature has not attempted to investigate the difference in export performance

between non-LLDCs and LLDCs from a comparative perspective. Nor has the emphasis of these

studies been on landlockedness. Landlockedness has been included in these empirical studies as

one of many variables, particularly to examine its effect on economic growth, not export perfor -

mance.

Following on from this discussion, this paper aims to contribute to the literature by specifically

examining the effect of landlockedness on export performance from a comparative perspective —

LLDCs versus non-LLDCs using the most recent data and methodology. This paper also examines

the impact of landlockedness on export performance by considering inter-country differences

among landlocked countries. The study additionally looks at whether landlockedness provides an

explanation for the slow growth of African developing countries.

The second objective of the study is relevant not only because Africa has experienced slow

growth from the mid-1970s to the mid-1990s, but also because Africa initiated policy reforms in

the early 1990s which led to an increase in trade. Against this background, Collier (2008) suggests

that African countries have been adversely affected due to conflict, landlocked neighboring coun-

tries, bad governance, and misuse of resources. Coe and Hoffmaister (1999) find that the low level

of trade in the African region is caused by economic size, geographical distance, and population.

More recently, Bosker and Garretsen (2012) find that improving market access has improved man-

ufacturing trade flows in Africa. Martinez and Mlachila (2013) conclude that the reforms in sub-

Saharan Africa have worked to enhance economic development in this region. But none of these

studies are focused on export performance of the region.

To achieve these objectives, we use a gravity modeling framework on panel data for dev eloping

countries as exporters. Partner countries include both developed and developing countries, for the

period 1995–2015. The findings of this study have important implications for policy by contribut-

ing to the debate on the role of geography in export performance. The findings of the study sug-

gest that one way of minimizing the negative impact of geographical constraints on trade is to

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