Trade and welfare consequences of land-lockedness : theory and empirical evidence from developing countries

Abstract

The purpose of this study is to analyse, both theoretically and empirically, the international trade and economic welfare consequences for land-locked developing countries of having no direct access to the sea. More specifically, the study aims firstly to show that the natural barrier to overseas trade due to land-lockedness is substantial, compared with both the value of goods they trade internationally, the natural barrier due to ocean shipping costs and the governmental barriers due to restrictive international trade policies. Secondly, it draws on international trade theory to derive a number of testable hypotheses concerning the trade and welfare consequences of land-lockedness. Where available secondary data permit, these hypotheses are then tested using non-parametric statistical techniques. By and large, the evidence is not inconsistent with the hypotheses, suggesting that land-locked developing countries do indeed have an additional significant trade barrier over and above that of their non-land-locked neighbours. The study concludes by suggesting some policy implications which follow from the analysis. In particular, if land-locked developing countries are to take as much advantage of the gains from international specialization of production as non-land-locked countries, they need to ensure that they have less government-imposed barriers to both commodity and factor trade than their neighbours, and that any government planning of industrial development promotes industries that not only make the best use of the country's resource endowments (that is, labour-intensive, low-skill industries) but also involve low transport costs.