The role of logistics performance in promoting trade

Abstract

There is widespread evidence that efficiency of logistics systems is a significant determinant of bilateral trade, but the magnitude of the effect may vary according to economic and geographical characteristics. An important aspect concerning the impact of logistics performance on trade volumes is the income level. This paper presents the findings of a gravity model, which is empirically tested to assess the extent to which logistics performance constitutes a facilitator to international trade. We compare the relative impact of various logistics performance dimensions on trade, and explore the differences over country income levels. Our research differs from previous studies in adopting an income-level approach, with an analysis of the impact of various logistics performance dimensions. We observed that the regulatory or trade facilitation environment could have divergent effects depending on the level of per capita income. Particularly, low-income economies realize highest benefits of their logistics excellence. For low- and lower-middle-income economies, logistics excellence increases exports more than imports. On the contrary, imports of upper-middle- and high-income economies tend to benefit more from better logistics performance than their exports. Accordingly, collaborative acts to improve logistics performance of partner countries may have a higher impact on the exports of an upper-middle-income country than improving only the exporter’s performance.