Inter-American Development Bank
facebook
twitter
youtube
linkedin
instagram
Abierto al públicoBeyond BordersCaribbean Development TrendsCiudades SosteniblesEnergía para el FuturoEnfoque EducaciónFactor TrabajoGente SaludableGestión fiscalGobernarteIdeas MatterIdeas que CuentanIdeaçãoImpactoIndustrias CreativasLa Maleta AbiertaMoviliblogMás Allá de las FronterasNegocios SosteniblesPrimeros PasosPuntos sobre la iSeguridad CiudadanaSostenibilidadVolvamos a la fuente¿Y si hablamos de igualdad?Home
Citizen Security and Justice Creative Industries Development Effectiveness Early Childhood Development Education Energy Envirnment. Climate Change and Safeguards Fiscal policy and management Gender and Diversity Health Labor and pensions Open Knowledge Public management Science, Technology and Innovation  Trade and Regional Integration Urban Development and Housing Water and Sanitation
  • Skip to main content
  • Skip to secondary menu
  • Skip to primary sidebar
  • Skip to footer

Beyond Borders

  • HOME
  • CATEGORIES
    • Asia – LAC
    • Innovation and Technology
    • Investment Attraction
    • Public-Private Alliances
    • Regional Cooperation
    • Regional Integration
    • Trade & Investment Agreements
    • Trade Facilitation
    • Trade Promotion
  • Authors
  • Spanish

Why Orderly Relations with Neighboring Countries Are Important for Trade

March 20, 2018 by Christian Volpe Martincus - Jerónimo Carballo Leave a Comment


To learn more about this issue, see chapter 6 of Out Of the Border Labyrinth, a report published by the IDB’s Integration and Trade Sector, and IDB Working Paper series no. IDB-WP-704, “Transit Trade.”

International transit systems

International trade between neighboring countries is dominated by overland transportation, whereby goods are frequently shipped through intermediate countries before reaching their final destination. This is known as “international transit.” In the absence of specific schemes to facilitate such transit, goods usually have to be imported and exported at each border crossing, generating large quantities of paperwork, time-consuming administrative procedures, heavy traffic at borders, delays, all of which conspire to increase the cost of trade. In contrast, when efficient transit schemes are in place, customs clearance is postponed until goods reach their destination market, which reduces red tape at intermediate border crossings and the costs associated with this.

Some of the forebears of modern transit systems are centuries old, such as the one implemented by the duchy of Milan during the Middle Ages. More recently, in the mid-20th century, the International Road Transport (TIR) system was established in Europe. The TIR simplified border procedures and streamlined trade between countries before evolving into a common transit regime for the European Union. At present, the most advanced transit systems entail unified border control procedures, a single, standardized customs form, and online document processing. Unfortunately, most developing countries do not have transit regimes that function properly. One notable exception is Central America’s International Goods in Transit (TIM) system, which is the focus of this post.

The TIM

The TIM covers international transit between Mexico, Guatemala, El Salvador, Honduras, Nicaragua, Costa Rica, and Panama. Thanks to the system, central American exporters have gone from having to compile multiple copies of the same documentation, show up in person at customs facilities, and fill out entry and exit forms at immigration on both sides of border crossings to using a system with unified border controls and a single online form that is coordinated through all the agencies in question to allow real-time monitoring of the entire process. For example, under the previous system, a shipment from El Salvador to Panama had to go through 112 stages (14 stages at each of the 8 border crossings), while the same shipment under the TIM system only has to complete 28 stages (7 stages at 4 border crossing), which represents a 75% reduction in bureaucratic procedures (figure 1). Naturally, this new system has improved times at the border and has significantly facilitated the monitoring and management of shipments.

Figure 1: Chapter 6 of Out Of the Border Labyrinth

The TIM in action: How it has impacted El Salvador’s international trade

El Salvador was the first country to implement the TIM. The system was phased in gradually between 2011 and 2013 for international overland trade (see figure 1). By the end of 2013, the TIM included corridors (or origin–customs segments) that covered most of the country’s trade with Honduras, Guatemala, Nicaragua, Costa Rica, and Panama. It is important to note that the most recent additions to this list of corridors are due to the implementation of the TIM in neighboring countries or the expansion of its coverage there (figure 2).

Figure 2: Chapter 6 of Out Of the Border Labyrinth

The implementation of an effective transit system would be expected to have a positive impact on international trade given the reduction in costs that such systems can bring about. Has this been the case with the TIM? The available evidence suggests that the rate of growth for exports from El Salvador via the TIM system has been 2.7 percentage points higher than for exports that did not use it. This additional growth is essentially explained by the relative increase in firms’ numbers of shipments (figure 3, upper panel) and to a lesser extent by the increase in the value exported per shipment. The TIM also seems to have contributed to increasing the number of exporter firms and enabling new firms to penetrate international markets (figure 3, lower panel).

Figure 3: See chapter 6 of Out Of the Border Labyrinth

In aggregate terms and controlling for the volume initially exported by the firms in question, Salvadoran exports would have been 6% lower if the TIM had not been implemented. With regard to the estimated cost of fully implementing the system, this translates into a cost/benefit ratio of US$40 for every US$1 invested in the TIM.

Lessons learned and international transit in the region

Transit systems can have a substantial effect on international trade, as the TIM experience has shown. The countries of Latin America could make the most of these experiences by moving toward implementing transit systems that allow them to take greater advantage of their export potential. The countries that particularly stand to benefit from acting on the lessons learned from the TIM experience in Central America include Ecuador and Colombia, which are carrying out pilot tests with the TIM, and member countries of the Southern Common Market (MERCOSUR), which have been implementing their own regional transit system. Finally, the region as a whole should be aiming to integrate the different subregional transit systems so as to achieve a more coordinated form of trade facilitation between countries.


Filed Under: Trade Facilitation

Christian Volpe Martincus

Christian Volpe Martincus is Principal Economist at the Integration and Trade Sector of the Inter-American Development Bank (IDB). Christian has expertise in international trade, foreign direct investment, regional integration, and economic geography, and has advised several governments in both Latin America and the Caribbean and OECD countries on these matters. He previously worked for the Ministry of the Economy of the Province of Buenos Aires and was advisor at the MERCOSUR Commission of the National Representatives Chamber in Argentina. In addition, he was researcher at the Center for European Integration Studies in Bonn, Germany. At the IDB Christian has been working on the impacts of trade and investment facilitation and promotion policies, the effects of trade and multinational production on sustainability, the implications of digital technologies for trade and investment, the role of integration in shaping trade flows and specialization patterns, and the interplay between innovation and exports (https://www.christianvolpe.com/). His research has been published in various professional journals such as the Review of Economics and Statistics, the Journal of International Economics, and the Journal of Development Economics, among others. Christian has a PhD in Economics from the University of Bonn, and is CESifo Research Fellow, Associate Editor of the Review of International Economics, and member of the Editorial Board of the World Trade Review.

Jerónimo Carballo

Jerónimo Carballo is an Assistant Professor in the Department of Economics at the University of Colorado Boulder. His primary research interest is International Trade with a special emphasis on firms' decisions under uncertainty and how firms organize trade across countries. He is also interested in the relationships between buyers and sellers in different countries and exploring trade costs using micro data. His research has been published in the Journal of International Economics, the Journal of Development Economics, and other outlets.

Reader Interactions

Leave a Reply Cancel reply

Your email address will not be published. Required fields are marked *

Primary Sidebar

Follow Us

Subscribe

Search

Productivity and Trade

This space explores how trade, investment and sustainable development in strategic sectors can boost productivity and strengthen more dynamic, inclusive and resilient economies in Latin America and the Caribbean. From trade facilitation and export and investment promotion to entrepreneurship, the development of public-private synergies, agri-food systems and tourism, we address challenges and opportunities for growth in the region.

Related posts

  • How Does Trade Respond When Borders Are Simplified via Single-Window Systems?
  • Miles of Red Tape and Piles of Paperwork: How We Can Simplify Labyrinthine Borders and Bring Countries Closer to International Markets?
  • The Authorized Economic Operator Program: Firm Steps toward Exporting to More and More Markets
  • Blockchain technology: a new opportunity for international trade
  • The Border Traffic Light: How Customs Processing Affects Trade

Categories

Footer

Banco Interamericano de Desarrollo
facebook
twitter
youtube
youtube
youtube

    Blog posts written by Bank employees:

    Copyright © Inter-American Development Bank ("IDB"). This work is licensed under a Creative Commons IGO 3.0 Attribution-NonCommercial-NoDerivatives. (CC-IGO 3.0 BY-NC-ND) license and may be reproduced with attribution to the IDB and for any non-commercial purpose. No derivative work is allowed. Any dispute related to the use of the works of the IDB that cannot be settled amicably shall be submitted to arbitration pursuant to the UNCITRAL rules. The use of the IDB's name for any purpose other than for attribution, and the use of IDB's logo shall be subject to a separate written license agreement between the IDB and the user and is not authorized as part of this CC- IGO license. Note that link provided above includes additional terms and conditions of the license.


    For blogs written by external parties:

    For questions concerning copyright for authors that are not IADB employees please complete the contact form for this blog.

    The opinions expressed in this blog are those of the authors and do not necessarily reflect the views of the IDB, its Board of Directors, or the countries they represent.

    Attribution: in addition to giving attribution to the respective author and copyright owner, as appropriate, we would appreciate if you could include a link that remits back the IDB Blogs website.



    Privacy Policy

    Copyright © 2025 · Magazine Pro on Genesis Framework · WordPress · Log in

    Banco Interamericano de Desarrollo

    Aviso Legal

    Las opiniones expresadas en estos blogs son las de los autores y no necesariamente reflejan las opiniones del Banco Interamericano de Desarrollo, sus directivas, la Asamblea de Gobernadores o sus países miembros.

    facebook
    twitter
    youtube
    This site uses cookies to optimize functionality and give you the best possible experience. If you continue to navigate this website beyond this page, cookies will be placed on your browser.
    To learn more about cookies, click here
    X
    Manage consent

    Privacy Overview

    This website uses cookies to improve your experience while you navigate through the website. Out of these, the cookies that are categorized as necessary are stored on your browser as they are essential for the working of basic functionalities of the website. We also use third-party cookies that help us analyze and understand how you use this website. These cookies will be stored in your browser only with your consent. You also have the option to opt-out of these cookies. But opting out of some of these cookies may affect your browsing experience.
    Necessary
    Always Enabled
    Necessary cookies are absolutely essential for the website to function properly. This category only includes cookies that ensures basic functionalities and security features of the website. These cookies do not store any personal information.
    Non-necessary
    Any cookies that may not be particularly necessary for the website to function and is used specifically to collect user personal data via analytics, ads, other embedded contents are termed as non-necessary cookies. It is mandatory to procure user consent prior to running these cookies on your website.
    SAVE & ACCEPT