Does bureaucracy affect the outcome of logistics performance? Empirical evidence from South Asia

PurposeThe purpose of this paper is to develop and test theory-driven hypothesis on trade costs’ effect of logistics performance (LP) and bureaucratic efficiency, primarily from SAARC (South Asian Association for Regional Cooperation) perspective.Design/methodology/approachThe paper develops hypothesis based on the review of the literature and theory linking LP, trade costs and institutions. The authors test the hypothesis using secondary data sources: World Bank-UNESCAP trade costs database, World Bank Logistics Performance Index (LPI) and Political Risk Service's Political Risk Rating. Fixed-effect approach is used to test the hypothesis.FindingsThe influential role of bureaucratic quality on relationship between LPI and South Asian trade costs (inter-SAARC and intra-SAARC) is evident. The results also point out that bureaucratic quality also conditions the effect of different dimensions of LPI on South Asian trade costs. Further, it is found that bureaucratic inefficiency mitigates the effects of LPI on South Asia's trade costs with its proximate trading partners APEC (Asia–Pacific Economic Cooperation) and ASEAN (Association of Southeast Asia Nations).Research limitations/implicationsThe analysis is conducted using short span of data. With the availability of long span of data, the understanding of the relationship studies in this paper will improve.Practical implicationsThe results suggests policymakers to improve bureaucratic efficiency for utilizing the full potential effect of LPI in deceasing trade costs. The study inspires businesses to act and advocate in favor of reforms in governance system.Originality/valueThis paper is among the first, which investigates the possibility that the relationship between LPI and trade costs depends on the bureaucratic efficiency. It provides a more detailed description of the LPI-trade costs relationship.