WPS3832

# **Entering the Union:**

# **European Accession and Capacity-Building Priorities**<sup>**+**</sup>

## John S. Wilson<sup>*</sup> , Xubei Luo<sup>**</sup> , and Harry G. Broadman<sup>***</sup>

### **Abstract**

This paper examines the impact of trade facilitation on bilateral trade flows. We examine trade facilitation and capacity building priorities in 12 countries in the Europe and Central Asia region —eight of the current members of the European Union: Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Slovakia and Slovenia and three candidate members: Bulgaria, Romania, and Turkey. Our results suggest that behind-the-border factors play an important role in determining bilateral trade flows (controlling for the effects of tariffs, development levels, distance, and regional characteristics of exporters and importers, among other factors).

The development of new data sets to expand work related to trade facilitation, including strengthening the empirical work explored here is a key priority without which intelligent policy and priorities cannot be made. Our analysis is based on data from the World Economic Forum, Global Competitiveness Report 20012002, World Competitiveness Yearbook 2000, and Kaufmann, Kraay and Zoido-Lobaton (2002). The results outlined here indicate that more gains in exports than in imports are expected should the values of three out of the four indicators (port efficiency, regulatory regimes and IT infrastructure)<sup>1</sup> of the new and candidate member countries improve halfway to the EU15 average. These countries would expect large trade gains as well as improvements in trade balances as their integration into the EU continues. For example, the greatest absolute trade gains – $49 billion and $62 billion respectively – could be expected if their port efficiency and IT infrastructure reach half the average level of the EU, and 70% of trade gains are associated with export expansion.

### World Bank Policy Research Working Paper 3832, February 2006

_The Policy Research Working Paper Series disseminates the findings of work in progress to encourage the exchange of ideas about development issues. An objective of the series is to get the findings out quickly, even if the presentations are less than fully polished. The papers carry the names of the authors and should be cited accordingly. The findings, interpretations, and conclusions expressed in this paper are entirely those of the authors. They do not necessarily represent the view of the World Bank, its Executive Directors, or the countries they represent. Policy Research Working Papers are available online at http://econ.worldbank.org._

> + _The research results presented here are part of a broader research project on “Trade Facilitation and Economic Growth: The Development Dimension” in the Development Economics Research Group of the World Bank.  The project is funded through a Trust Fund established by the U.K. Department for International Development (DFID) to explore the impact of trade costs and barriers on development.  The findings and conclusions here do not necessarily represent the views of U.K. government or DFID._

* Development Research Group, World Bank, 1818 H Street, NW, Washington, DC.

**Europe and Central Asia Region, World Bank.  Corresponding email: xluo@worldbank.org. ***Africa Region, World Bank.

1 See Annex 1 for the definition of the four indicators “port efficiency”, “customs regimes”, “regulatory policy”, and “IT infrastructure”. It will be of benefit to include additional indicators (such as road quality, etc.) in the analysis. However, subject to data constraints for cross-country comparisons this is not possible currently.