Estimating the Effects of Logistics Performance on Trade: Evidence From Different Gravity Model Approaches

Abstract

This paper examines the effects of logistics performance on international trade. A country's logistics capacity is measured by the Logistics Performance Index ( LPI ), compiled by the World Bank, which gives comparable country‐level data for 166 countries in six waves. We use the LPI in different gravity model approaches, comparing the results from fixed effects Poisson regressions, relative gravity, and a Probit estimation. We construct a bilateral trade dataset with 27,638 bilateral trade relationships from CEPIIs trade database. The results of all used approaches indicate sizable and significant positive effects of logistics performance on international trade. While positive and significant for all regions, the size of logistics effect on trade differs across the regions. The findings give relevant policy implications and stress the need to improve the logistics system and associated performance to encourage trade.