Strengthening Bolivian Competitiveness: Export Diversification and Inclusive Growth (A World Bank Country Study)

The government of Bolivia seeks to reinvigorate the nontraditional export sector as part of its national development strategy. This Country Study investigates the role that trade should play in Bolivia s development strategy, given the country s rich resource endowment, and examines the lessons of Bolivia s integration into the global economy. Considering the past links between trade and Bolivia s economy, the study analyzes the impact of different scenarios on growth, employment, trade flows, and poverty; it also evaluates barriers to higher export competitiveness and constraints on exporting firms. The study concludes that preferential access to world markets is necessary but not sufficient for success in nontraditional exports. Efficient services are necessary to reduce exporters costs, and the government should be more proactive in laying the foundation for export diversification, increasing the effectiveness of institutions, and addressing impediments to crossborder trade. Contents......Page 5 Preface......Page 10 Acknowledgments......Page 11 Abbreviations and Acronyms......Page 12 Main Findings......Page 14 Policy Implications......Page 17 Notes......Page 19 Table 1.1. Share of Value Added by Sector (Percent)......Page 21 Trade, Macroeconomic, and FDI Policies since the 1985 Liberalization......Page 27 Diversification and the Optimal Export Strategy for Bolivia......Page 40 Notes......Page 42 Table 1.A.1. Import Tariffs Applied by Bolivia (Percent)......Page 44 The Concentration of Exports and Potential for Diversification......Page 47 Table 2.3. New Products, by Rauch Categories: Bolivia vs. Other LAC Countries......Page 53 Conclusion......Page 55 Notes......Page 58 Table 2.A.1. Contribution of Different Demand Components to Real GDP Growth in Bolivia......Page 59 Annex 2.2. CGE Models......Page 63 Figure 2.A.1. Andean Non-Oil Exports to the United States: Distribution of Preferences Granted by Product......Page 69 Table 2.A.16. Impact of Deepening MERCOSUR Integration on Exports and Employment......Page 78 Annex 2.5. Effects on Poverty......Page 80 Table 2.A.22. Poverty Measures: MERCOSUR Integration, Agriculture......Page 85 Linkages between Trade, Growth, and Employment in the Past......Page 87 Table 3.8. Total Effects on Poverty and Welfare-MERCOSUR Integration......Page 110 Annex 3.1. Transports and Logistics......Page 114 Table 3.A.1. Leading Nontraditional Export Products, 2006–07......Page 115 Export Competitiveness in Bolivia......Page 116 Transport and Logistics......Page 126 Notes......Page 141 Is There a ‘Productivity Premium’ for Bolivian Exporters?......Page 143 What Factors Affect Exporters?......Page 148 Figure 5.4. Perceptions of Bolivian Exporters on Governance Issues......Page 151 Policy Implications......Page 155 Notes......Page 157 References......Page 158 Table 1.2. Value Added and Labor Share in Selected Economic Sectors (Percent)......Page 23 Table 1.3. Key Policy Mechanisms of Bolivian Integration......Page 28 Table 1.5. Utilization Rate, ATPA/ATPDEA, 1997–2005......Page 29 Table 1.A.2. Tariffs that Bolivian Exporters Face Abroad (Percent)......Page 45 Table 1.A.3. Trade Taxes that Bolivia’s Exports Face Abroad (Percent)......Page 46 Table 2.1. Bolivia’s Main Export Markets (2007 and 1998)......Page 48 Table 2.2. New Products, Observed and Predicted Values: Bolivia vs. Other LAC Countries......Page 52 Table 2.A.4. Pairwise Granger Causality Tests......Page 60 Table 2.A.7. Results of Johansen Cointegration Tests for Nontraditional Exports and GDP......Page 61 Table 2.A.8. Pairwise Granger Causality Tests, GDP and Nontraditional Exports......Page 62 Table 2.A.9. Sectors Modeled......Page 64 Table 2.A.10. Impact of Different Trade Liberalization Scenarios on Bolivian Exports, Selected Sectors, Percentage Change......Page 65 Table 2.A.11. Impact of Different Trade Liberalization Scenarios on Bolivian Imports, Selected Sectors, Percentage Change......Page 66 Table 2.A.12. Impact of Different Trade Liberalization Scenarios on Bolivian Output, Selected Sectors, Percentage Change......Page 67 Table 2.A.13. Impact of Different Trade Liberalization Scenarios on Labor Demand, Selected Sectors, Percentage Change......Page 68 Table 2.A.14. ATPDEA Utilization Rates for Top Ten Bolivian Exports 2000–06......Page 71 Table 2.A.15. Supply Comparison of Andean Countries in Jewelry, Apparel, and Crude Oil......Page 74 Table 2.A.17. Probit Regression Results, Selection Equation (Prob. Unemployed)......Page 83 Table 2.A.20. Poverty Measures: MERCOSUR Integration, Manufacturing......Page 84 Box 3.1. Estimating Manufacturing Jobs in Bolivia: 50,000 or 500,000 Jobs?......Page 92 Table 3.2. Impact of Different Trade Policy Scenarios on Bolivia’s Macro Indicators......Page 96 Table 3.3. Scenario 1—Impact on Bolivian Exports to Selected Partners......Page 98 Table 3.5. Impact of a Hypothetical 10 Percent Increase in the World Price in Selected Commodities......Page 101 Table 3.6. Trade and Employment Effects of ATPDEA Elimination......Page 105 Table 3.7. FTA: Simulated Expenditure Change......Page 109 Table 4.1. Export Volumes and Values by Main Exit Points, 2005–06......Page 127 Table 4.2. Typical Truck Tariffs between Main Transport Nodes......Page 129 Table 4.3. Main Parameters for Exports of Wood from Northern Bolivia......Page 130 Box 4.5. Cochabamba’s Many Small-Scale Nontraditional Exporters......Page 132 Figure 5.1. Labor Costs, Capital Stocks, and Revenue of Exporting and Nonexporting Firms in Enterprise Survey for Bolivia......Page 145 Table 5.2. Bolivian Exporters’ Premium on Wages, Capital, and Sales after Controlling for Size, Industry, and Location......Page 146 Table 5.3. Productivity Premium of Bolivian Exporters......Page 147 Table 5.4. Estimated Factors Affecting the Probability to Export......Page 154 Figure 1.1. Sectoral Breakdown of GDP......Page 22 Figure 1.2. Bolivian Export Product Structure......Page 24 Figure 1.3. Bolivia’s Share of World Exports......Page 25 Figure 1.4. Foreign Trade, Selected Indicators for 1985 and 2005......Page 26 Figure 1.6. Twelve-Month Inflation and Depreciation......Page 31 Figure 1.7. Central Bank Domestic Debt......Page 32 Figure 1.8. Multilateral Real Exchange Rate of Total Trade, and Traditional and Nontraditional Exports......Page 33 Figure 1.9. Multilateral Real Exchange Rate of Nontraditional Exports and Selected Bilateral Real Exchange Rates......Page 34 Figure 1.11. Customs and Other Duties on Imports as a Share of Tax Revenues (Percent)......Page 35 Figure 1.12. FDI and Export Volume in Selected Sectors......Page 37 Figure 1.13. Main Features of Bolivia’s Business Environment......Page 38 Figure 1.15. FDI in Manufacturing Sector by Product, 1996–2005......Page 39 Figure 2.1 Bolivia’s Export Concentration......Page 49 Figure 2.2. Growth of Bolivia’s Export Markets......Page 50 Figure 2.3. New Products and Concentration in Bolivia’s Exports......Page 51 Figure 2.4. Actual vs. Predicted Imports and Exports, Bolivia, 1992–2005......Page 54 Figure 2.6. Over-Importing and Under-Exporting vis-à-vis Brazil, Argentina, and Chile, 1992–2005......Page 56 Figure 2.8. Over-Importing and Over-Exporting vis-à-vis CAN, 1992–2005......Page 57 Figure 2.A.3. Bolivia’s Distribution of Exports to the United States, by Preferential Program......Page 70 Figure 2.A.4. Exports’ Evolution of Andean Countries in Main Bolivian Export Markets......Page 72 Figure 2.A.6. Bolivian Exports of Apparel and Raw Cane Sugar to the United States......Page 75 Figure 2.A.7. Simulation of Impact of Tariff Change on Bolivian Export Revenues (in Apparel)......Page 76 Figure 3.2. Export and Import Growth, 1971–2006 (Annual Growth Rates of Exports and Imports of Goods and Services in Real Terms)......Page 88 Figure 3.3. Long-Run Evolution of Real Exports and Real GDP (Variables in Natural Logarithms)......Page 89 Figure 3.4. Bolivian Exports by Groups of Products, 1962–2006 (US$ Millions)......Page 90 Figure 3.5. Distribution of Employment Growth, by ISIC Industry......Page 91 Figure 3.6. Export Growth and its Correlation with Employment......Page 93 Figure 3.7. Change in Exports to the U.S. Attributable to the Elimination of ATPDEA......Page 104 Figure 4.2. Logistics Performance (Overall Logistics Performance Index, Higher is Better)......Page 119 Figure 4.3. Gross CEDEIM Issuing and Nontraditional Exports......Page 122 Figure 4.4. Imports under RITEX......Page 123 Figure 5.2. Factors Perceived to be Major or Severe Problems for Firm Performance......Page 149 Figure 5.3. Perceptions of Bolivian Exporters on Key Factors for Firm Growth and on Infrastructure and Network Services......Page 150 Figure 5.5. Differences in the Predicted Probability to Export among Bolivian Firms under Different Scenarios......Page 156 Box 1.1. Beyond Diversification: The Export Strategy of Bolivia as a Resource-Rich Country......Page 41 Box 3.3. The GTAP Database......Page 97 Box 3.4. Methodology Used for the Partial Equilibrium Analysis of the Impact on Employment......Page 103 Box 3.6. Poverty in the 2005 Household Survey......Page 107 Box 4.1. The International Market for ICT and Other Service Exports......Page 118 Box 4.2. Obstacles Limiting Exports of Services–New Survey Evidence......Page 120 Box 4.3. International Experiences with Export Promotion Agencies......Page 125 Box 4.4. Legal Framework for Bolivian Trucks Using Chilean Ports......Page 131 Box 4.6. Institutional Arrangements for Managing the Paraguay-Paraná River Waterway (“Hidrovia”)......Page 135 Box 4.7. Design Road Pavements to Withstand Overloaded Trucks......Page 136 Box 4.8. Priorities of the Aduana Nacional de Bolivia......Page 138 Box 4.9. Transport International Routier System......Page 139 Box 5.1. Why Are Exporting Firms More Productive? A Review of the Theoretical Arguments......Page 144 Box 5.2. Econometric Methodology to Estimate the Export Propensity among Bolivian Firms......Page 153