Estimating trade itself is a challenging issue since it depends on multiple determinants. And, most importantly, majority of the determinants are bilateral instead of global nature. We just did a quick estimate of how logistics performance can impact trade as well as the economy. Of course, while we talk of the impact on economy, it is primarily restricted to international trade related domains only. Though logistics play a critical role on domestic trade also, but it could not be explicitly captured due to data paucity.
This exercise is done for Nepal as a case study. The prime challenge is non-availability of data. It is told earlier that bilateral data is critical to estimate a trade function. The unfortunate part is apart from indicators that reflect physical characteristics of the countries and certain economic parameters, logistics related data is not available that reflect bilateral measures. The Only data that is directly linked to logistics is Logistics performance Index (LPI) of The World Bank. It provides an overall score and well as the sub-indicators for logistics performance. But it is available at the country level. Though this index is relative in nature and does not reflect absolute changes over time for any country, yet this is the best possible data to use for the purpose as stated. We had to pool several countries data for the years when LPI data is available and also some other data on trade cost as well as certain trade restrictive index. A pooled regression provided quite interesting results. Looking forward to make it more robust in coming days.