Costs and benefits of eliminating institutional constraints on the expansion of nontraditional exports : final report

This study presents a prototype methodology for measuring the costs of institutional barriers to NTEs and then tests that methodology in two countries -- Ghana and Madagascar -- which have undertaken significant reforms that stress outward-oriented and private sector incentives. The study examines trends in NTE growth, by product and market destination, as well as factors determining the evolving structure of comparative advantage. For each country, the legal, regulatory, and judicial environment is described in great detail, and some discussion is given to infrastructural constraints. Next, findings are presented from surveys of about 40 exporting firms in each country, followed by results of application of the methodology to these firms. A comparative analysis of the two countries is made, focusing on the institutional environment in Africa and the distortions in incentives that it creates. The following institutional constraints are identified: (1) restrictions on exporters" retention of foreign exchange earnings; (2) lack of duty-free access to imported inputs; (3) slow and costly procedures for clearing exports and imported inputs; (4) lack of access to term finance for fixed investments; (5) lack of access by smaller firms to working capital; (6) problems in implementing special incentive schemes; (7) lack of competition for air and sea freight; (8) inadequate transportation and telecommunications; (9) excessively complicated or restrictive regulations regarding land and labor; (10) lack of qualified labor and mid-level managers; and (11) problems in enforcing contracts with overseas importers. The study concludes that it is possible to measure quantitatively some of the costs associated with institutional barriers to NTEs and that these costs are considerable, even in countries that have undertaken fundamental economic reform. Recommendations are presented in conclusion.