The effects of trade logistics on exports, margins of trade and vertical specialisation : the case of Thailand

Abstract

Efficient, fast, and low-cost trade logistics have become crucial in international trade, especially with the growth of global production networks (GPNs). Trade logistics enhances the international competitiveness of a country, through shortening time taken to export, improving certainty, and reducing trade transaction costs. This study examines the impact of trade logistics on Thailand’s export at aggregated and disaggregated sectoral levels, extensive export margin, intensive export margin and vertical specialisation (import of inputs content of export). It employs an augmented gravity model using panel data over 13 years and 58 country pairs between Thailand and its trading partners using a Poisson Pseudo Maximum Likelihood (PPML) estimator. Seven indicators are used as proxies for trade logistics, which include the overall logistics performance index (LPI) and its six components: 1) customs, 2) infrastructure, 3) international shipment, 4) logistics quality and competence, 5) tracking and tracing, and 6) timeliness. In addition, this study also conducts a focused group discussion and interviews with relevant trade logistics agencies and major industrial players to see whether the results are in line with empirical estimation results. The initial empirical result indicates that overall LPI and its three components (customs, infrastructure, and tracking and tracing) of Thailand and its trading partners are the significant factors in promoting the aggregated export of Thailand. The aggregated export of Thailand responds to improvement in customs of Thailand and its trading partners the most. A further investigation shows similar results across sectors. The machinery and transportation equipment export of Thailand is positively affected by the improvement in customs, as well as tracking and tracing of Thailand and its trading partners, while food and chemical sectors benefit from the improvement in customs of Thailand and its trading partners. Furthermore, the improvement in the overall LPI and its six components increases the extensive export margin as well as vertical specialisation of Thailand, while the improvement in overall LPI, customs, infrastructure, tracking and tracing of Thailand and its trading partners promotes intensive export margin of Thailand. The findings from the focused group discussion and interviews reiterate the empirical estimation results. The main policy implication is to enhance the investment in Thailand’s e-custom paperless and National Single Window (NSW) in order to promote export and vertical specialisation of Thailand.