Understanding National Level Logistics Costs: Methodological Approach

Abstract

Logistics cost (LC) estimated by different methods are not comparable since cost components differ across countries and are not properly standardised, non-availability of comprehensive reliable data on LC and presence of number of qualitative components. No method of measuring LC has considered probability distributions of the components/dimensions. After review of methods to estimate LC, the article proposes to transfer the j-th component score emerging from questionnaire-based approach to a proposed score ( P j ) so that 0 ≤ P j ≤ 100 and follows normal distribution. Logistics cost index (LCI) of i-th country is taken as multiplicative aggregation of ratios of P j at the current period and base period of all components. The index avoids perfect substitutability of arithmetic aggregation, and it satisfies the desired properties of an index including time-reversal test and formation of chain-indices, and enables meaningful comparisons across time and space, better ranking and classifying the countries, identification of critical dimensions/components requiring policy changes, drawing path of decline or increase of LCI over time for a country, computing mean LCI for a group of countries and LCI at Global level, and undertaking statistical analysis under parametric set up. Future investigations suggested reflecting properties of the proposed LCI along with empirical relationships of sector-wise LCI and economic development. JEL Codes: D57, E23, P44