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From mine to coast: Transport infrastructure and the direction of trade in developing countries

From mine to coast

Roberto Bonfatti and Steven Poelhekke

Mine-related transport infrastructure typically connects mines directly to the coast, at least in countries where those mineral resources are mostly exported. But if mines are an important determinant of total national investment in infrastructure, a resource-rich country may end up with a transportation network with an interior-to-coast shape, potentially biasing its trade costs in favour of overseas countries relative to neighboring countries. This pattern seems most relevant in Africa, where transportation networks have a markedly interior-to-coast shape. This is often blamed on colonial policies, based on the belief that colonisers cared too much about the colonies' trade in natural resources as opposed to their local and regional trade. Africa's interior-to-coast networks are deemed to be ill-suited to promote its regional integration, which in turn is often seen as a key step towards industrial development.

In this article published in the Journal of Development Economics, Roberto Bonfatti and Steven Poelhekke provide the first econometric evidence that mine-to-coast transport infrastructure biases the pattern of trade of developing countries in favour of overseas trading partners. We estimate the effect of such infrastructure on the pattern of bilateral trade flows. We find that a standard deviation increase in the number of mines over the mean biases a country's pattern of trade flows in favor of overseas trade, to the extent that these mining countries import 56% less from neighboring countries (relative to overseas countries), than do countries with an average number of mines. However, this effect is reversed for mining landlocked countries, who import relatively more from neighbors.

We rationalize this finding through the unequal effect that mines have on a country's network of infrastructure: because the mine-related transport infrastructure connects the coast rather than neighboring countries, it lowers the cost of trading with overseas countries more than with neighbors. In contrast, for landlocked countries trade costs are also lowered with some neighbors through which infrastructure is built to reach the coast. The effect is specific to mines and not to oil and gas fields, because pipelines cannot be used to trade other commodities. The effect is robust to measuring the stock of mine-related infrastructure by distance along roads between mines and ports, and to taking into account their relative position to routes used for trade between ports and main cities.

Our results have important implications for the development consequences of resource-related infrastructural investment. A mining boom in an African country may benefit neighboring countries less than one may have expected, if it leads to more mine-to-coast infrastructure that divert relative trade away from those countries. If anything, firms located in neighboring countries will face higher trade costs relative to their overseas competitors, and this may also apply to domestic firms as well if their location is such that they do not benefit from the mine-to-coast infrastructure directly. The mine-to-coast infrastructure may then have a negative competitive effect on regional and domestic producers.

This effect should be kept in mind when evaluating the impact of infrastructural investment in Africa. In this respect, it is interesting to consider the recent surge of Chinese investment in Africa, particularly in comparison with the investment strategy advocated by development agencies such as the African Development Bank (ADB). For years, the ADB has been advocating a major expansion in Africa's interior-to-interior connections. Do the Chinese investments help achieve the expansion path advocated by the ADB? A first look at the trajectory of the 40 largest Chinese road and rail investment projects between 2000 and 2013 seems to suggest otherwise: only 5 of these 40 projects connected two African countries with each other, and in 4 out of 5 cases this involved the connection of a landlocked country to the coast. Furthermore, 83% (by value) of the projects have an interior-to-coast shape. While one cannot underestimate the importance of the Chinese roads and railways to reduce transportation costs in Africa, results in this paper suggest that their more subtle effects on development should also be taken into account.

Journal of Development Economics (July 2017), From mine to coast: Transport infrastructure and the direction of trade in developing countries, by Roberto Bonfatti and Steven Poelhekke.

 

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Posted on Monday 3rd April 2017

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