Defining the logistics performance as factor of production: an evidence based analysis from developing countries

Abstract

Economic globalization has been expedited by the logistics industry. This study investigates logistics performance (LP) as a factor of production in developing economies by incorporating the logistics performance index (LPI) as a factor in the Cobb-Douglas production function. We used the World Bank's LPI for 2007, 2010, 2012, 2014, 2016, and 2018 as a measure of LP. The other control variables are capital stock, employed labor force, and financial development. The GMM technique was employed to mitigate unobserved heterogeneity. The findings show that LP contributes significantly to the overall economic growth (EG) of developing economies. Further analysis revealed that LPI components, custom procedures, and infrastructure were the most significant contributing factors to the growth process. Finally, the study also investigates the LPI coefficient for two groups (i.e. high and low LP countries) based on the LPI scores and finds that in countries with high (low) LPI, capital stock (employed labor force) contributes more to the EG. Overall, our findings strengthen the notion that, in the modern economic era, LP is a factor of production. This implies that policymakers should devise customized strategies to improve LPI and, in particular, custom procedures and infrastructure to boost EG in developing economies.