# 3 Data

The 2007 Logistics Performance Index (LPI) is sourced from the World Bank<sup>5</sup> and is constructed on a scale from 1-5. The LPI is calculated by the World Bank using a Principal Components Analysis of six di¤erent sub-indicators. The indicators are listed below together with their weights in the LPI:<sup>6</sup>

1. E¢ ciency of the clearance process by customs and other border agencies (0.18);

2. Ease and a¤ordability of international shipments (0.20); 3. The facility to track and trace shipments (0.16); 4. The timeliness with which shipments reach their destination (0.15).

5. Transport and information technology infrastructure (0.15); 6. Local logistics industry competence (0.16).

Further details of the construction of each indicator are available in Arvis et al (2007). In summary, the index is based on more than 5,000 country evaluations by logistics professionals. The perceptionsbased measure is corroborated with a variety of qualitative and quantitative indicators. For example, Arvis et al (2007) calculate that, on average, a one-point rise in the LPI corresponds to exports taking three more days to travel from the warehouse to port. Unlike other studies, for example Wilson et al (2005), the components of the index are drawn from the same source.

E¢ ciency of the clearance process by customs and other border agencies, the ease and a¤ordability of arranging international shipments, the ability to track and trace those shipments as well as the speed with which they reach their destinations are directly relevant to international trade. Transport and IT infrastructure are relevant to all trade, whether international or domestic, as is the competence of the local logistics industry. Originally, the World Bank also collected data on a seventh component: domestic logistics costs. This component was found to be uncorrelated with the others and was consequently dropped by the World Bank.

Costs given by tij (i 6= j) re‡ect international trade cost factors relative to trading within borders. As a result, it is conceptually correct to measure those aspects of logistics which a¤ect international trade costs and are relevant for cross-border trade. In fact, strictly speaking, measures that a¤ect both internal and international costs equally have no impact on exports in fully-speci...ed gravity models. We should focus on the relevant components listed, but separate treatment of each component would lead to serious

> 5 http://go.worldbank.org/88X6PU5GV0

> 6 The weights that are used are not reported by the World Bank but can be backed out. For each country i, we have Li = wCi where Li is i’s LPI score, Ci is a [6x1] vector of i’s component scores, and w is a [1x6] vector of the weights. We can then use six di¤erent country LPI scores to form a [6x1] matrix L in which row i corresponds to country i’s LPI score, Li, together with each country’s component scores to form a [6x6] matrix C, in which column i corresponds to country i’s vector of scores Ci. Then we solve L = wC for w = C<sup>�1</sup> L to obtain the weights. We do this for a number of di¤erent sets of countries to ensure that the weights we calculate are una¤ected by rounding errors.

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