Bolivia: The economics of landlocked countries

BOLIVIA’S quest to recover the coastline it lost in a 19th-century war looks like romantic folly. Much of its trade passes through Chile, and no political deal can reduce the distance between Bolivia’s cities and the sea.

BOLIVIA’S quest to recover the coastline it lost in a 19th-century war looks like romantic folly. Much of its trade passes through Chile, and no political deal can reduce the distance between Bolivia’s cities and the sea. But the loss is not just symbolic. If trade flowed freely, being landlocked would be no impediment to growth. In the real world, it is.

With a few exceptions the world’s 45 landlocked countries are poor. Of the 15 lowest-ranking countries in the Human Development Index, eight have no coastline. All of these are in Africa, which is a poor region. But even compared with similar sea-front countries those without coastlines have lagged behind. Their GDP per person is 40% lower than that of their maritime neighbours.

Their most obvious handicap is in moving goods to and from ports. International treaties promise access to the oceans, but responsibility for implementing them lies with the governments of the “transit states”. They have little incentive to build infrastructure that would mainly help their neighbours.

Border officials in both landlocked and transit countries often extract bribes and cause delays. According to Jean-François Arvis of the World Bank, lorries travelling to poor landlocked countries cover 250km (150 miles) a day. That is half the rate of progress of those driving just within neighbouring coastal states.

Enterprises regard landlocked trading partners as unreliable, since transit states can interrupt commerce. A strike by Chilean customs officials in 2013 caused a queue of lorries 20km (12 miles) long in Bolivia. This type of risk is especially grave in Africa, where civil strife is more common and landlocked countries often have to reroute trade at exorbitant cost. Businesses in those countries hold larger inventories to hedge against such disruptions, reducing their competitiveness.

Landlocked countries labour under historical burdens. They have weaker institutions, according to a recent paper by Fabrizio Carmignani of Griffith University in Australia. The flow of people and ideas that brought innovation to maritime countries largely bypassed landlocked ones. He calculates that Bolivia’s GDP would be a fifth higher if it had kept its access to the sea.

The success of the few rich landlocked countries offers little hope to poorer ones. Switzerland specialises in finance, which does not travel by boat, and its high-end manufacturing is integrated with Europe’s single market. Many of the goods it exports, such as watches, are expensive and small. Botswana, a middle-income landlocked country, exports diamonds, which are shipped by air.

Unfortunately, countries like Bolivia cannot move next to Germany or discover diamonds. Even if Chile yielded to its demand for access to the sea, Bolivia might recover just five percentage points of its “missing” GDP, Mr Carmignani reckons. Its best hope lies in becoming part of an EU-style single market. That could take another century.

the Economist |

Top
We use cookies to improve our website. By continuing to use this website, you are giving consent to cookies being used. More details…