Quantifying Transport, Regulatory and Other Costs of Indian Overland Exports to Bangladesh

In the globalised world, country borders ought to be arbitrary lines on the map. But recent studies have shown that informal trade barriers still do exist and inhibit trade flows, particularly so in the developing countries. This can arise due to a host of factors such as, complex customs procedures, which sometimes are changing, capacity constraints given limited facilities and/or corruption at the border. These types of non-tariff barriers of various sorts and structural impediments are less obvious and perhaps more interesting, but also much more difficult to directly measure. In this context, this paper attempts to quantify all the relevant costs resulting from informal trade barriers that impinge upon Indian overland exports to Bangladesh through the land custom stations (LCSs) at Petrapole (West Bengal, India) and Benapole (Bangladesh). The study is based on primary data collated through surveys conducted in West Bengal. Our estimate shows that the aggregate delay pertaining to all the phases of exports turns out to be approximately four days for a single shipment. It also shows that the additional transaction cost in terms of delays and speed money incurred by the Indian exporters during trading with Bangladesh is about 10 per cent of the shipment value. Our estimate has shown that informal barriers/para-tariff in Indian overland exports to Bangladesh are already high. Therefore, it is essential to improve the infrastructure and administration at the border to reduce transaction cost. It would be even more important to do this if trade is liberalised, because congestion costs will otherwise rise with the resulting increased demand for trade across the border. The paper concludes with feasible policy recommendations to make trade between India and Bangladesh more vibrant. JEL NO. F19, R41 Key words: Institutional barriers, transaction cost, and corruption