2. Economic Freedom as Catalyst for Trade Enhancement: Circularity in Causal Relations “ SAARC Governments commitment to Economic Freedom in South Asia” Dr. Ayub Mehar Director General (R&D) The Federation of Pakistan Chambers of Commerce & Industry (FPCCI) Seminar organized by SAARC Chamber of Commerce & Industry (SCCI) Islamabad 11 th August, 2009
7. Economic Freedom in Selected SAARC Countries 32.6 7.6 - - 16.2 - 42.2 0.5 16.3 49.5 5.1 3.5 Sri Lanka 84.8 6.7 35.9 1.3 9.8 - 49.5 0.1 72.6 11.8 14.4 18.3 China 42.0 2.5 31.4 1.8 23.8 - - 0.3 - - 5.2 7.3 Malaysia 11.1 15.9 16.2 Firms offering formal training % of firms Workforce 9.7 15.6 8.4 Average time to clear exports through customs days Trade 17.0 22.5 7.8 ISO certification ownership % of firms Innovation 25* 6.6 10.6 Value lost due to electrical outages % of Sales Infrastructure 3.6 19.4 24.7 Firms using banks to finance investment % of firms Finance - 9.1 16.1 Firms with female participation in ownership % of firms Gender - 59.2 - Firms that do not report all sales for tax purposes % of firms Informality 0.1 0.1 1.2 Losses due to theft, robbery, vandalism and arson % of Sales Crime 57.0 47.5 85.1 Unofficial payments to public officials % of firms Corruption 35.2 - 6.1 Time required to obtain operating license days Permits and licenses 4.2 3.1 1.4 Average number of times management met with tax officials 8.7 6.7 3.2 Time dealing with officials % of management time Regulations and tax Pakistan India Bangladesh
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10. Economic Freedom in Selected SAARC Countries (Rank: Out of 141 Countries) 8 17 24 15 63 United Kingdom 101 119 116 131 10 Bangladesh 7 27 4 21 42 United States 98 94 129 93 46 Sri Lanka 98 71 113 54 41 India 76 115 122 111 48 Pakistan Regulations Freedom to Trade Internationally Sound Money Legal System & Property Rights Size of Government Countries
16. Enabling Trade Index Source: World Economic Forum Scores (1-7) 4.4 4.2 4.8 3.2 Capital controls 5.3 5.7 5.7 5.4 Business impact of rules on FDI 4.2 4.2 4.8 3.7 Ease of hiring foreign labor 4.6 4.4 3.8 3.1 Property rights Regulatory environment 8 8 9 6 Documents for Exports (No. of documents required to export) 9 6 8 8 Documents for imports (No. of documents required to import) Import - Export procedures 3.7 3.7 3.6 2.4 Burden of Custom Procedures 4.0 6.2 10.4 6.7 Complexity of tariffs (average of the variance of tariffs) 34.1 20.3 30.9 48.0 Non-tariff barriers (Index: average of two non-tariff barriers related variables) 10.9 8.2 11.5 13.0 Tariff Barriers (Trade-weighted average tariff rate) Market Access India Sri Lanka Pakistan Bangladesh Indicators
17. Enabling Trade Index (Rank out of 121) Source: World Economic Forum 75 79 63 112 Capital controls 54 24 25 50 Business impact of rules on FDI 98 93 53 113 Ease of hiring foreign labor 51 56 83 111 Property rights Regulatory environment 83 83 98 42 Documents for Exports 85 30 66 66 Documents for imports Import - Export procedures 65 64 76 119 Burden of Custom Procedures 107 59 48 27 Complexity of tariffs 48 31 43 76 Non-tariff barriers 94 78 95 108 Tariff Barriers Market Access India Sri Lanka Pakistan Bangladesh Indicators
18. Financial Development Index Score (1-7) 2.0 2.0 Domestic financial sector liberalization 39.6 23.8 Cost of enforcing contracts (as a % of debt) 1420 880 Time to enforce a contract (No. of days) 46 47 Number of procedures to enforce a contract 3.9 2.4 Centralization of economic policymaking 2.9 3.0 Burden of government regulation India Pakistan Indicators
19. Financial Development Index (Rank out of 52) 38 49 Domestic financial sector liberalization 46 27 Cost of enforcing contracts 51 46 Time to enforce a contract 48 49 Number of procedures to enforce a contract 18 44 Centralization of economic policymaking 32 31 Burden of government regulation India Pakistan Indicators
20. Tariff Barriers 5.9 14.6 15.2 22.0 13.0 14.5 26.1 weighted mean tariff 10.5 14.9 12.5 22.2 16.0 17.5 15.5 Simple mean tariff Manufactured products % 9.5 8.8 9.9 18.0 17.0 37.7 8.8 weighted mean tariff 15.2 14.1 12.5 17.8 24.0 42.6 15.6 Simple mean tariff Primary Products % 1.5 0.5 0.6 0 0 0 0.1 Share of tariff lines with Specific rates 23.1 43.2 16.8 72.3 16.0 61.6 41.5 Share of tariff lines with international peaks 7.0 12.2 13.4 20.5 15.0 21.5 19.9 Weighted mean tariff 11.0 14.8 12.5 21.3 17.0 22.2 15.5 Simple mean tariff 29.6 52.2 26.0 37.0 50.0 - 161.7 Simple mean bound rate 36.8 44.8 99.4 97.1 74.0 - 15.1 Binding Coverage All Products % Sri Lanka Pakistan Nepal Maldives India Bhutan Bangladesh
22. Circularity in Relations Factors of Economic Freedom Trade Enhancement & Liberalization Trade Competitiveness
23. Causal Relations Dependent variable: Goods Market Efficiency Legal System & Property Rights Goods Market Efficiency Size of Government 4.7 4.9 T-Statistics -0.10 0.86 Coefficient of Correlation Size of Government Legal System & Property Rights Explanatory Variables
24. Causal Relations Dependent variable: Labour Market Efficiency Labour Market Efficiency Legal System & Property Rights Labour Market Regulations Freedom to Trade Internationally 5.66 8.47 3.21 T-Statistics 0.46 0.58 0.64 Coefficient of Correlation Freedom to Trade Internationally Labour Market Regulations Legal System & Property Rights Explanatory Variables
25. Causal Relations Dependent variable: Financial Market Sophistication Legal System & Property Rights Financial Market Sophistication Freedom to Trade Internationally Credit Market Regulations Sound Money 7.87 8.48 5.39 9.15 T-Statistics 0.49 0.46 0.60 0.81 Coefficient of Correlation Sound Money Credit Market Regulations Freedom to Trade Internationally Legal System & Property Rights Explanatory Variables
26. Causal Relations Dependent variable: Technology Readiness Freedom to Trade Internationally Technology Readiness 8.82 T-Statistics 0.55 Coefficient of Correlation Freedom to Trade Internationally Explanatory Variables
27. Causal Relations Dependent variable: Innovation Soft Business Regulations Innovation Sound Money 5.27 8.92 T-Statistics 0.42 0.74 Coefficient of Correlation Sound Money Soft Business Regulations Explanatory Variables
28. Causal Relations Dependent variable: Institutional Governance Size of Government Institutional Governance 5.08 T-Statistics -0.20 Coefficient of Correlation Size of Government Explanatory Variables
29. Causal Relations Dependent variable: Business Sophistication Soft Business Regulations Business Sophistication Sound Money 8.92 3.93 T-Statistics 0.74 0.74 Coefficient of Correlation Sound Money Soft Business Regulations Explanatory Variables
30. Business Competitiveness Export of Goods Market Size Simultaneity in International Trade Import of Services Import of Goods GDP Institutional Governance Innovations Export of Services