Improving Transport Corridors’ Efficiency for Stronger Regional Value Chains Integration in Central Asia

Sustainable economic development, improved trade flows, and robust regional value chain integration in landlocked CAREC countries require smoother transit via country corridor routes without constraint. However, CAREC transit routes face numerous practical limitations, which raise transportation costs and transit times, trigger inefficiencies among firms, and hamper supply chains. While the development of the CAREC transport corridors has gained more attention, quantitative research on the measurement of efficiency of these transport corridors is virtually absent.

The CAREC study focused on a set of 22 countries, encompassing 11 economies situated along the CAREC corridors—Afghanistan, Azerbaijan, the PRC, Georgia, Kazakhstan, the Kyrgyz Republic, Mongolia, Pakistan, Tajikistan, Turkmenistan, and Uzbekistan—and 11 non-CAREC corridor economies in the Eurasian region— Czech Republic, Finland, France, Germany, Hungary, Iran, Netherlands, Poland, Spain, and Turkey.

It analyzes CAREC corridor efficiency for the period 2010 to 2020, restricted to road transport and export. The selected input and output variables include certification prerequisites, customs practices, and administration procedures including time and road transport cost incurred for export along the routes.

Table 1: CAREC Corridors and Regions/Countries

IMAR = Inner Mongolia Autonomous Region; XUAR = Xinjiang Uygur Autonomous Region. Both are regions of the People's Republic of China.
Source: Author’s compilation.

The Data Envelopment Analysis was applied to look into the comparative efficiency of the transport corridors over the 10-year period. The scores covered constant return to scale, variable return to scale efficiency, and scale efficiency. It took into account three inputs and one output. Table 2 shows that chosen inputs are: i) number of documents to export via transportation,^[2] ii) transit time (measured in days), and iii) transaction cost (measured in USD per 20-foot equivalent unit). The selected output is volume of exports^[3] handled by each decision-making unit, also measured in 20-foot equivalent units (TEUs).

Table 2: Indicators

Source: Author's compilation.

Results highlight that only Corridor 4 maintained technical efficiency (constant return to scale efficiency) and demonstrated high efficiency (variable return to scale efficiency), as well as scale efficiency during the 10-year period. This reflects better infrastructure along the corridor transit through regions of the People’s Republic of China (Inner Mongolia Autonomous Region, Mongolia, and Xinjiang Uygur Autonomous Region).

Technical efficiency — Corridor 5 displayed stronger technical efficiency from 2010 to 2015, after which it exhibited inefficiency. The technical efficiency of Corridor 2 remained low but steady from 2010 to 2015 followed by significant inefficiency till 2020. Corridors 1, 3, and 6 were the most inefficient CAREC transport corridors based on estimates from 2010 to 2020.

Variable return to scale efficiency — Corridors 2 and 5 demonstrated variable return to scale efficiency from 2010 to 2015 followed by inefficiency thereafter. Corridors 1, 3, and 6 displayed inefficiency in this aspect from 2010 to 2020.

Scale efficiency — Corridors 1 and 5 exhibited strong scale efficiency from 2010 to 2015. However, Corridor 5 displayed scale inefficiency from 2016 to 2020, while Corridor 1 demonstrated scale inefficiency from 2016 to 2018 and recovered thereafter to display efficiency in 2019 and 2020. Corridors 2, 3, and 6 demonstrated scale inefficiency, though fluctuating from 2010 to 2020.

CAREC corridors’ participation in regional value chains

To analyze the impact of CAREC corridors on regional value chain participation and address potential selection bias, the study integrated Difference-in-Differences method into a Propensity Score Matching framework. It found that the introduction of CAREC corridors has increased participation in regional value chains of countries along routes. Several factors, including market size, economic openness, material capital, and urbanization, distinctly exhibit a significantly positive influence on participation of countries within CAREC corridors in regional value chains.

Improving the efficiency of CAREC transport corridors

Lagging CAREC transport corridors can initiate holistic reforms of their transportation systems for better performance efficiency. Higher performance and better efficiency of CAREC transport corridors and transit infrastructures entail tackling not only physical barriers to trade but also administrative barriers. Border clearance procedures, and required customs and official documents should be simple, translucent, and harmonized. Novel digital technologies, trade facilitation and modern customs clearance processes can be instituted with moderate investment to bolster soft infrastructure, which have immense potential to bestow considerable reduction in transit transport costs and trade transit times.

Collaborative engagement in institutional restructuring can help remove inefficient trade transit and customs processes for smother border clearance. Capacity building of relevant functionaries in novel customs and legal practices, and shared digital skills is imperative. In this context, regional cooperation in evolving compatible transportation system for shared benefits is essential.

Corridor-specific policy recommendations

Corridor 1 — Establish truck scanner system for enhanced efficiency of customs clearance, lower road cargo costs along high density Urumqi–Almaty route, and implement containerization in multimodal transport and e-Carriage of Goods by Road through regulatory reforms and capacity building of both the technical and logistics manpower.

Corridor 2 — Implement transparent consignment rules and fees through an official arrangement, and institute the scheme of authorized economic operator and green lanes to shorten time at transit points.

Corridor 3 — Develop alternative shorter routes from Georgia to Tajikistan via Turkmenistan, establish novel transit agreements between Georgia and Tajikistan, develop cold chain for steady exports of agricultural and horticultural products by the Kyrgyz Republic, and establish digital scanners and green lanes for accelerated scrutiny of consignments via Uzbekistan.

Corridor 4 — Improve customs clearance procedures along Mongolia-PRC transit points to minimize the delays of perishables items.

Corridor 5 — Execute single window system in Pakistan for Afghanistan cargos, implement reciprocal authorized economic operator scheme, establish International Road Transports parks along heavy-traffic border-crossing points, and switch to rail transport to lower transport cost and increase the value of agricultural exports.

Corridor 6 — Implement novel technologies like global positioning system, digital stamping and smart scanners, and green lanes and authorized economic operator scheme in Tajikistan for Afghanistan’s agriculture and horticulture consignments. Other recommendations are: i) build the technical and managerial capabilities of Turkmenistan’s officials in modern logistics, ii) modernize and strengthen the hard and soft infrastructures at border-crossing point between Turkmenistan and Uzbekistan, iii) develop cold chain for agricultural and horticultural products mobility between Tajikistan and Uzbekistan, and iv) implement reciprocal authorized economic operator scheme between bordering countries to lower transit cost and delays at border-crossing.

Bolstering participation in regional value chains

^[1] CAREC is composed of Afghanistan, Azerbaijan, People’s Republic of China, Georgia, Kazakhstan, Kyrgyz Republic, Mongolia, Pakistan, Tajikistan, Turkmenistan, and Uzbekistan.

^[2] This analysis focuses exclusively on road transport, the primary mode of transportation in the context of CAREC countries. In addition, the data for transaction cost, transit time, and so on by rail and other transportation modes is largely unavailable for most of these countries.

^[3] The specific input variables selected from the World Bank Business Database for export efficiency analysis unfortunately are not available for import analysis, especially across all CAREC countries. Hence, the analysis is limited to examining export efficiency only.

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