Topic:

Challenges faced by the Landlocked Countries in Trade

Submitted by: Yeshi Wangchuk
Student ID: RIM/2020/3282
Unit: introduction to Public Administration
PGDPA (2020)
Challenges faced by Landlocked Countries in Trade

Title: Challenges faced by Land-locked countries in trade.

Problem statement: Land-locked countries are considered to be remote relative to

the outside world. Due to this, land-locked countries have to depend on neighbouring
countries in order to trade with countries other than its neighbouring countries. Since
land transportation is much higher than the sea transportation in cost, being a land-
locked country has been a constraint for its economic development. According to
Misovicova (2003), 31 Least Developed Countries around the world are landlocked.
He goes on to cite World Bank (1999), that the LDCs are paying 50 percent more in
transport cost than coastal countries, and have 60 percent lower volumes of trade. 

Bhutan as a landlocked country is no exception to this case. Although Bhutan is

known to have a story of success in development, as a landlocked country it faces
many challenges in economic development.  To trade with countries other than India,
Bhutan has to always depend on India. To trade with Bangladesh, Bhutan has to ply
through India which is quite time consuming and expensive which would be reduced
if Bhutan is a coastal country.

Objective: To assess as to how Bhutan could overcome the trade barrier as a

landlocked country.

Literature Review.

In this globalised world, trade between the countries have become a crucial
part of economic growth of the country. The more trade one country does with other
countries, the more developed will be the country. Some of the African countries like
Eswatini and Liechtenstein which are land-locked, without having direct access to
sea are geographically constrained for international trade and thereby affecting the
economic growth of the country (Bowen, 1986). According to Mackellar and et al.
(2000), the annual growth of a country is reduced by 1.5 per cent being a landlocked
country. Of the 44 land-locked countries around the world, 35 countries are still
Landlocked Developing Countries (Paudel, 2014). Due to various challenges faced
by land-locked countries, they face difficulty in trading with other countries, thus lag
behind in economic growth. While participating in international trade, landlocked
developing countries struggle with high cost in trade, remoteness from international

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Challenges faced by Landlocked Countries in Trade

market and dependent on commodity, thus lagging behind in economic growth of the
country. 

One of the greatest struggles of the landlocked countries in international trade

is high cost. According to the World Bank (2008), land-locked countries are paying
50 percent more in trade cost. Paudel (2014) states that landlocked developing
countries are not well integrated with the rest of the world due to high cost in trade
and do not get much benefit from globalization. Gallup and et al. (1998) mention that
internal migration of labour is much easier compared to cross-border migration.
Moreover, the landlocked developing countries depend on transit countries, Arvis
and et al. (2010), and Mackellar and et al. (2000), state that the transport cost will
increase through transit charges and onload and offload cost while switching the
transport mode. The latter also mentions that the process will reduce the price of
export and increase the price of imports. Limao and et al. (2001), found out that 10%
of the cost is changed by the distance and poor road infrastructure in coastal
countries changes 40% of trade costs and 60% in landlocked countries.

Moreover, high cost in trade is not only due to poor road infrastructure but due
to lack of competition behaviour in the trucking industry since transport prices
depend mainly on trucking market structure (Arvis and et al. 2010). However, Arvis
and et al. (2010) mentions some of the solutions for the struggles of high cost in
trade faced by the landlocked countries. The author emphasizes to develop regional
transport infrastructure and ensuring freedom of transit by signing of multilateral and
regional convention. In addition, Carrere and Grigoriou (2011) mention that
improving the quality of internal infrastructure for trade would reduce much of the
cost of the trade. 

In addition to the trade costs, remoteness from the international market is one
of the challenges faced by the landlocked countries. Due to this, landlocked
countries have to depend on their neighbouring countries to participate in
international trade. Despite improving transport facility, landlocked countries still face
challenges in getting access to world market (Faye and et al., 2004). Carrere and
Grigoriou (2011) note that, for the economic growth of the central Asian countries,
the distance of it from main economic market is still a constraint faced. The distance
of the landlocked countries from the international market and coastal area is not the

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actual distance but the difficulties faced to overcome to take part in international
market. The need to go through the transit countries distances the landlocked
countries much from the international market, thus lack its participation in the
international market. 

Moreover, it is found out that the landlocked countries are much dependent on
commodities. The United Nations Conference on Trade and Development (2019)
noted that the landlocked countries are more dependent on the commodities which is
more than 80% of their export earnings. It also mentions that 81 per cent of the
landlocked developing countries are dependent on commodities. In addition, in 27
landlocked of the 32 developing countries in 2011-2013, primary commodities
accounted for more than half of the exports (United Nations Conference on Trade
and Development, 2015). Moreover, Mackeller and et al. (2000) state that landlocked
developing countries do not get economic opportunities as tourism development and
coastal fishing unlike its neighbouring coastal countries.

Despite having to face such challenges to participate in international market,

there are landlocked countries around the world taking various measures to
overcome such challenges. Dairabayeva (2015), states that due to the establishment
of one-stop border post (OSBP) in Malaba, on Kenya’s western border with Uganda
the truck drivers experienced significant reduction of time spent at border. With the
reduction of the time spent at the border, the cost of trade has significantly reduced.
Moreover, Goldberg (2018) states example of Luxembourg, a country with high
economic growth, although being a landlocked country. The country ‘invested’
greatly on finance, technology and service sector rather than relying on natural
resource export. Therefore, country like Luxembourg in Europe is highly developed
country even though it is a landlocked country.  

To conclude, having a smooth trade for landlocked countries around the world
is a challenge in working towards developing their country. The cost of the trade for
the landlocked country is the most challenging while trading and participating in
international market. Landlocked countries are considered to be remote from the
international market as they have to mostly depend on the transit countries for
trading with other countries. Landlocked countries also get limited opportunities as
compared to coastal countries, so therefore, they are much dependent on the

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primary commodities as their main export. Therefore, most of the landlocked

countries around the world are way behind in terms of economic growth than the
coastal countries. 

Analysis/ Discussion

The coastal countries have progressed more in economic growth than the
landlocked countries as they can trade more easily with other countries. Bhutan as a
landlocked country is no exception to the trade barriers. Since embarking on to the
planned economic development, Bhutan achieved many things in few decades.
However, as a landlocked country, Bhutan faces certain challenges in trade thus,
lagging behind in economic growth. What made countries like Luxembourg and
Azerbaijan so successful in economic growth despite being a landlocked?

One of the developed landlocked countries of Europe is Luxembourg. Similar

to Bhutan, Luxembourg is also known to have stable political situation. Luxembourg
has friendly relations with its neighbours, France, Belgium and Germany, where they
can import and export things without any problem, which greatly helped them in their
development of economy as the cost of the trade is low. As for Bhutan, although it
has very good relation with its neighbouring country, India, Bhutanese transporters
face difficulty while ferrying through India. There has been lots of news where
Bhutanese truck drivers were beaten and injured by Indian mobs. This has become
an impediment for Bhutan to trade with third countries as it increases the cost of
trade.

Azerbaijan is known to be most developed among the landlocked developing

countries. Most of the people of the country earn greatly from agriculture products.
They worked towards diversifying their economy. Further, their boom in energy has
led to massive foreign direct investment and their economic growth is one of the
world’s highest. On the other hand, Bhutan is a great importer of agricultural
products and goods from India. The energy that we can harness from the water is
also left unused today which could draw a lot of foreign direct investment otherwise.

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Challenges faced by Landlocked Countries in Trade

Recommendations

As a landlocked country, Bhutan is facing a lot of challenges to participate in the

international market thus lagging behind in economic growth compared to the coastal
countries. Bhutan is connected only to India through road, so the trade cost is
comparatively high for Bhutan to participate in international market. Still then there
are few measures that Bhutan can take to overcome such trade barriers.

1. Using of resources available and infrastructural development

Bhutan’s second largest trading partner and export market is Bangladesh. Bhutan
can use more of Dhubri river from Phuentsholing to Bangladesh to carry the goods
which reduces the cost of trade. The chairman to the Coastal Ship Owner’s
Association of Bangladesh, Mahfuz Humid, told The Daily Star that, through the use
of Dhubri river, the cost of the trade can be reduced by 30 per cent and will take
eight days shorter than the routes taken on land. Therefore, the cost of the trade
would be solved by Bhutan and boost economy of our country. Moreover, Bhutan
can work towards infrastructural development within the country so that more people
can take part easily in trade with low cost.

2. Involve in meaningful dialogue with India to ease Bhutan’s trade

To export things to Bangladesh, Bhutan takes days to reach its destination

through India. Although Bhutan and India have a Free Trade Agreement, which gives
Bhutan duty free transit right for trade with third countries, we hear news about
Indian mobs beating, injuring and stopping the truck drivers of Bhutan, thereby taking
more time to reach Bangladesh. In addition, truck drivers have to pay a lot of money
across different points of road, thus distancing Bhutan, by such problems, from
international market. To overcome such problems, Bhutan has to engage in a
meaningful dialogue with Indian counterparts and strengthen Free Trade Agreement
so that Bhutanese going through India can go safely.

3. Diversify Bhutan’s Economy

Bhutan can focus on diversifying of its economy. The main export of Bhutan

today is raw materials like metals, chemical products and woods. Bhutan imports

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almost all the manufactured goods. If Bhutan continue to invest in education and
enact policies that encourage business, it will succeed in diversifying its economy. If
the economy of Bhutan is diversified, it can export more of manufactured goods or
value-added goods to the outside world in addition to raw materials that it is currently
exporting. By doing so Bhutan can increase its export and participate in international
market.

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References

Arvis, J. F., Marteau, J. F., & Raballand, G. (2010). The cost of being landlocked:

Logistics costs and supply chain reliability. The World Bank.

Bowen, R. E. (1986). The land-locked and geographically disadvantaged states and the

law of the sea. Political Geographical Quarterly, 5(1), 63-69.

Carrere, C., & Grigoriou, C. (2011). Landlockedness, infrastructure and trade: new

estimates for central Asian countries. The World Bank

Dairayabayeva, K. (2015). How to improve transport in landlocked developing countries.

Retrieve from: https://www.weforum.org/agenda/2015/01/how-to-improve-

transport-in-landlocked-develooping-countries/

Gallup, J. L., Sachs, J. D., & Mellinger, A. D. (1998). Geography and economic

development. International Regional Science Review, 22(2), 179-232.

Goldberg, J. (2018). The economic struggles of landlocked countries. Retrieved from:

https://www.thoughtco.com/economic-struggles-of-landlocked-countries-1434532

Limao, N., & Venables, A. J. (2001). Infrastructure, geographical disadvantage, transport

costs, and trade. The World Bank Economic Review, 15(3), 451-479.

MacKellar, L., Worgotter, A., & Worz, J. (2000). Economic development problems of

landlocked countries. Reihe Transformationsokonomie/Transition Economics

Series, 16, 1-21.

Paudel, R. C. (2014). Economic growth in developing countries: Is landlockedness

destiny?. Economic Papers: A Journal of Applied Economics and Policy, 33(4),

339-361.

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 Challenges faced by Landlocked Countries in Trade

United Nations Conference on Trade and Development, (2015). Facilitating the

participation of landlocked developing countries in commodity value chains.

Retrieved from: https://unctad.org/en/pages/PublicationWebflyer.aspx?

publicationid=1434 

United Nations Conference on Trade and Development, (2019). State of commodity

dependence 2019. Retrieved from: https://unctad.org/en/pages/newsdetails.aspx

World Bank, (2008). Landlocked countries: Higher transport costs, delays, less trade.

Retrieved from:

https://www.worldbank.org/en/news/feature/2008/06/16/landlocked-countries-

higher-transport-costs-de;ays-less-trade