The Effect Of Logistics Performance And Trade Facilitation On International Trade:Evidence From Lower And Upper-middle Income Countries

In recent years,trade has been the focus of global attention.Globally,trade tensions,tariffs,and uncertainty in many economies have recently slowed the growth of merchandise trade slightly.However,despite this turmoil,exports and imports from developing countries have increased over the past decade.In 2019,the trade value of goods exported worldwide amounted to about US$19 trillion at current prices.This compares to about US$6.45 trillion in 2000.The increase in the value of the world’s exported goods reflects the evolution of international trade,globalization,and technological advances.With the increase in the volume of international trade,the disappearance of borders between countries,and the progression of globalization,the logistics industry has recently gained importance.Today,logistics has become one of the most essential,important and efficient sectors in the world.Goods and services are produced in one part of the world and demanded in another.To make a difference and gain advantages,fast and timely distribution is indeed necessary for service providers and goods producers.This dissertation aims to develop a methodological approach to the scientific understanding and practical implementation of the importance of improved logistics performance and trade facilitation on international trade in lower and upper-middle-income countries.The logistics performance,trade facilitation and international trade are the main topics that have been addressed throughout this dissertation.In addition,globalization and certain factors influencing international trade such as foreign direct investment,trade openness and population size were also explored.The objective was to analyze the contribution of the logistics performance and trade facilitation in increasing the volume of international trade of lower and upper middle-income countries.To do so,we attempted to(1)estimate the impact of the logistic performance index on international trade;(2)analyze the impact of trade facilitation on international trade;and(3)determine the mediating effect of the logistic performance index in the relationship between trade facilitation and international trade.Finally,we(4)examine the explanatory factors of international trade.However,before moving on to the econometric analysis,the dissertation first started with a theoretical and empirical justification for the choice of the logistics performance,trade facilitation as the main factor influencing international trade and then to give some reason for the recent growth of world trade volume.It provides an overview of the factors influencing international trade flow in recent decades:the integration of logistics into world trade and the development of trade facilitation.The theories of international trade explain the mechanism of international trade:how countries trade goods and services with each other.Various countries with limited resources depend on other countries to meet their needs.Theories of international trade help countries decide what to import and what to export,how much and with whom to trade.Initially,economists developed theories of international trade on a country basis,which were called classical theories.However,these theories later shifted from a country-based approach to a firmor company-based approach in the mid-twentieth century,which is called the modern theories.Furthermore,the integration of logistics into the relationship between customers and suppliers is an effective way to use management techniques to optimize their collective performance in the production,storage and distribution of a final product.The performance of these factors improves consumer satisfaction and the perception of the supplier’s image.Logistics performance and trade facilitation are nowadays important for international trade.Infrastructure,as well as logistics management,is key to facilitating trade,reducing costs and ensuring quality of service for international trade.The dissertation also examines the impact of logistics performance and its components on international trade using the augmented gravity model.A comparative analysis for the years 2010,2012,2014,2016,and 2018 has been done using the Poisson estimation technique.The results show that logistics performance has a significant and positive effect on trade.The study reports that logistics performance among lower and upper-middle-income countries is more important for importing nations than for exporting nations.However,this trend reversed for upper-middle-income countries starting in 2016,where logistics performance becomes more important for exporters than for importers.The results also reveal that quality of service is the most important of all factors,followed by international shipments,infrastructure,tracking,speed,and customs for the years 2010,2012,and 2014.For the years 20162018,timeliness,followed by international shipments,quality of service is the most important factor.Customs and infrastructure are the least important factors,respectively.The results also show that upper-middle-income countries are far ahead of lower-middle-income countries in enhancing trade facilitation.Therefore,middle-income countries must first improve their infrastructure and customs processes in order to be trade efficient.The dissertation extends by analysing the impact of trade facilitation and the effects of its two dimensions(hard and soft infrastructure)on international trade.This study first requires that we define and construct a trade facilitation index using several primary variables:quality of air,ports,railroads and roads,availability of latest technologies,business ICT use,mobile telephone subscriptions/100 pop,firm-level technology absorption,individuals using the internet,cost to export,time to export,document to export,government efficiency,burden of customs procedures,burden of government regulation,irregular payments and bribes,prevalence of trade barriers and transparency of government policymaking,before grouping them into four trade facilitation measures.After applying the system-generalized method of moments(GMM),the main finding is that all trade facilitation indicators significantly affect exports.The results show that physical infrastructure improvements are also more likely to increase exports than the efficiency of borders,transport,information and communication technologies(ICTs)and institutions,from the most significant to the least significant.It is also found that the effect of hard infrastructure on exports is virtually the same as that of soft infrastructure.Furthermore,the dissertation attempted to analyse the mediating role of logistics performance in the relationship between trade facilitation and international trade.To do so,first,structural equation modeling(SEM)conceptualizes a theoretical causal model composed of a set of predicted covariances between variables and then tests the plausibility of the model when compared to observed data.A series of hypotheses were used to test the relationships between latent construction.The first hypothesis revealed a negative and insignificant relationship between trade facilitation and international trade(θ=-.048;P=0.481),indicating that better trade facilitation leads to a reduced international trade volume.The second hypothesis revealed a significant relationship between trade facilitation and international trade(β=0.609;P<0.001),indicating that better trade facilitation is associated with better logistics performance.The same result for the third hypothesis,logistics performance has a positive and significant effect on international trade(θ=0.524;P<0.001).The final hypothesis showed the positive and significant effect of trade facilitation on international trade through logistics performance(θ=0.240 P<0.001),indicating that trade logistics performance mediated the effects of trade facilitation on international trade.Then,following Baron and Kenny’s four steps,we applied Sobel and Bootstrapping to test the significance of the mediation effect.The results reveal a positive and statistically significant relationship between trade facilitation and international trade through logistics performance.Finally,the dissertation analyses the explanatory factors of international trade by using a static and dynamic model.The estimation results from both models indicate that the explanatory variables have a positive and significant influence on international trade,however,the impact of the explanatory variables is more important on the trade flow when using the dynamic model.The findings of the study show that globalization,trade openness,FDI,and population size positively and significantly influence international trade.Therefore,by grouping the study data by country with different income groups,we find that globalization has no significant impact on lower-middle-income countries,while trade openness and FDI have a positive and significant impact on international trade.In upper-middle-income countries,population size does not determine trade volume,but globalization and trade openness have an essential role in increasing trade flows.The results also show that the logistics performance index is an excellent indicator for assessing the trade facilitation of countries worldwide,thus enabling effective and efficient international trade.The evidence of a significant and positive effect of LPI on international trade suggests that improved trade facilitation can reduce trade costs and enhance the competitiveness of countries internationally.In this dissertation,we found that improvements in logistics performance(i.e.,Customs,Infrastructure,International shipments,Logistics competence,Tracking&tracing,and Timeliness)and trade facilitation(i.e.,time and costs of importing and exporting a 20-foot container shipment,quality of governance,quality of transport infrastructure and services)have resulted in increased trade flows.The results obtained support the existing literature suggesting that logistics performance and trade facilitation have a significant and positive effect on international trade.Improving customs procedures,the quality of infrastructure and institutions,and the contribution of advanced technology are beneficial for international trade.In addition,investment in transport-related infrastructure may help people in developing countries escape poverty,achieve a good standard of living,have easy access to health care and education,enable small farmers to transport their products efficiently,and ensure food security.Furthermore,after using different methods and analyses to solve the problem addressed in this study,we can conclude that improvements in trade facilitation,including logistics performance,generate better returns in terms of increased export performance in both lower and upper-middle-income countries.This study revealed several measures by which improved trade facilitation contributes to the growth of international trade.First,the study highlights the importance of trade facilitation data collected regarding logistics performance and,finally,the benefits of trade facilitation in general.Trade facilitation data enables evidence-based decision making,including prioritization of reforms and resource allocation.Trade facilitation data provide incentives for reform and allow policymakers to monitor progress.Trade facilitation data,including logistics performance data,also helps businesses make operational and investment decisions and helps all stakeholders identify good practices to replicate.Trade facilitation enables national administrations to strengthen controls and ensure proper revenue collection,while contributing to economic development by increasing incentives for trade and foreign investment.Therefore,trade facilitation stimulates the flow of goods and promotes economic dynamism and welfare.It therefore improves the cost-effectiveness of trade transactions.An inefficient and restricted flow of goods can lead to economic stagnation and poor economic performance.Furthermore,the results of this study benefit all economies by drawing the attention of policymakers to the importance of attracting foreign direct investment.Ultimately,improved trade facilitation offers substantial gains to businesses.It promotes transparency and more consistent and simplified procedures and reduces transaction costs and clearance times.