The Strength of the Association Between Financial Development and Logistics Performance

Abstract

Academic studies assume a positive association between development of finance and logistics performance, however, few empirical studies examine the relevance and strength of this relationship. To cover this gap, this paper tests the association between development of finance and logistics performance incorporating the countries’ governance quality and global competitiveness variables into the model. We use the PLS-SEM method to concurrently examine whether the countries’ good governance and financial sophistication spur superior logistics performance, which stimulates better global competitiveness for the countries. The results strongly support the conceptual assumptions. Notably, one unit increase in development of finance leads 0,517 unit increase in logistics performance. It is also shown that logistics performance has the greatest direct impact on global competitiveness compared to governance quality and financial development. Key Words: Financial development, financial sophistication, logistics performance, good governance, competitiveness. JEL Classification: G20, O47

Keywords

• Financial development
• financial sophistication
• logistics performance
• good governance
• competitiveness.

Finansal Gelişmişlik ve Lojistik Performans Arasındaki Bağlantının Boyutu

Abstract

Teorik çalışmalar finansal gelişmişlik ve lojistik performans arasında pozitif bir ilişki olduğunu öne sürse de bu ilişkiyi ve ilişkinin boyutunu inceleyen ampirik çalışmalar oldukça sınırlıdır. Söz konusu boşluğu doldurmak maksadıyla, ülkelerin yönetim kalitesi ve küresel rekabet gücü değişkenleri de modele eklenerek finansal gelişmişlik ve lojistik performans arasındaki ilişki test edilmiştir. Böylece PLS-SEM yöntemiyle, ülkelerin yönetim kalitesinin ve finansal gelişmişliğin, yüksek lojistik performansa ve devamında daha iyi küresel rekabet gücüne neden olup olmadığı eş zamanlı olarak test edilmiştir. Sonuçlar teorik varsayımları güçlü bir şekilde desteklemektedir. Finansal gelişmedeki bir birimlik artışın lojistik performansda 0,517 birimlik bir artış sağladığı görülmüştür. Ayrıca analiz sonuçları lojistik performansının küresel rekabet gücü üzerinde, yönetim kalitesi ve finansal gelişmişlik değişkenlerine oranla daha büyük doğrudan etkiye sahip olduğunu göstermektedir. Anahtar Kelimeler: Finansal gelişmişlik, lojistik performans, yönetim kalitesi, rekabet gücü. JEL Sınıflandırması: G20, O47

Keywords

• Financial development
• financial sophistication
• logistics performance
• good governance
• competitiveness.

References

1. Acemoglu, D. (2001). Credit market imperfections and persistent unemployment. European Economic Review, 45, 665-679.
2. Acemoglu, D. and Robinson, J.A. (2012). Why Nations Fail: The Origins of Power, Prosperity, and Poverty. New York, NY: Crown.
3. Ahad, M. and Imran, Z.A. (2021). Does governance quality matter for the development of financial institutions in Pakistan? Journal of Economic and Administrative Sciences. https://doi.org/10.1108/JEAS-03-2021-0061.
4. Alizadeh, A.H., Kappou, K., Tsouknidis, D. and Visvikis I. (2015). Liquidity effects and FFA returns in the international shipping derivatives market. Transportation Research Part E, 76, 58-75.
5. Arvis, J-F., Mustra, M.A., Ojala, L., Shepherd, B. and Saslavsky, D. (2012). Connecting to Compete 2012, Trade Logistics in the Global Economy, The Logistics Performance Index and Its Indicators. Washington, DC: The International Bank for Reconstruction and Development / The World Bank.
6. Beck, T., Levine, R. and Loayza, N. (2000). Finance and the sources of growth. Journal of Financial Economics, 58, 261-300.
7. Beck, T., Demirguc-Kunt, A., Laeven, L., and Maksimovic, V. (2006). The determinants of financing obstacles. Journal of International Money and Finance, 25,/6, 932-952.
8. Bidgoli, H. (2010). The handbook of technology management, supply chain management, marketing, and advertising, and global management. Vol. 2. John Wiley and Sons, Inc: New Jersey, US.

9. Bowersox, D.J., and Closs, D.J. (1996). Logistical Management: The Integrated Supply Chain Process. New York: McGraw- Hill.
10. Brunet, F. (2012). Regulatory Quality and Competitiveness in Recent European Union Member States. L’Europe en Formation. 2012/2 No:364.
11. Cavinato, J.L. (2004). Supply chain logistics risks. International Journal of Physical Distribution and Logistics Management, 34/5, 383-387.
12. Chen, N. and Novy, D. (2011). Gravity, trade integration, and heterogeneity across industries. Journal of International Economics, 85/2, 206–221.
13. Chin, W.W. (1998). The partial least squares approach to structural equation modeling. In: G. A. Marcoulides (Ed.), Modern Methods for Business Research, 295–358. Mahwah, NJ: Lawrence Erlbaum Associates.
14. Choi, T-M., Chui, C-H and Chan, H-K. (2016). Risk management of logistics systems. Transportation Research Part E, 90, 1-6.
15. Claessens, S. and Feijen, E. (2007). Financial Sector Development and the Millennium Development Goals. World Bank Working Papers. http://dx.doi.org/10.1596/978-0-8213-6865-7.
16. Cihak, M., Demirguc-Kunt, A., Feyen, E., and Levine R. (2012). Benchmarking Financial Systems around the World. Policy Research Working Paper, The World Bank.
17. Cihak, M., and Demirguc-Kunt, A. (2013). Rethinking the State's Role in Finance. World Bank, Washington, DC: World Bank. https://openknowledge.worldbank.org/handle/10986/13197
18. Cohen, J. (1988). Statistical power analysis for the behavioral sciences (2nd ed.). Hillsdale, NJ: Lawrence Erlbaum Associates.
19. Cumming, D., Schmidt, D., and Walz, U. (2010). Legality and venture governance around the world”, Journal of Business Venturing, 25/1, 54–72.
20. Diamond, D.W. (1984). Financial intermediation and delegated monitoring. The Review of Economic Studies, 51/3, 393-414.
21. Drobetz, W., Gounopoulos, D., Merikas, A. and Schöder, H. (2013). Capital structure decisions of globally-listed shipping. Transportation Research Part E, 52, 49-76.
22. Ellram, L.M. (1991). Supply-Chain Management: The Industrial Organisation Perspective. International Journal of Physical Distribution and Logistics Management, 21/1, 13–22.
23. Fan, Y., and Stevenson, M., (2018). A review of supply chain risk management: definition, theory, and research agenda. International Journal of Physical Distribution and Logistics Management, 48/3, 205-230.
24. Fanelli, J.M., and Medhora, R. ( 2002). Finance and competitiveness in developing countries. José María Fanelli and Rohinton Medhora Routledge (Ed.). International Development Research Center, London; New York.
25. Fawcett, S.E., Waller, M.A., and Bowersox, D.J. (2011). Cinderella in the C-Suite: Conducting Influential Research to Advance the Logistics and Supply Chain Disciplines. Journal of Business Logistics, 32/2, 115–121.
26. Fawcett, S.E. and Waller, M.A. (2013). Considering Supply Chain Management's Professional Identity: The Beautiful Discipline (Or, We Don’t Cure Cancer, But We Do Make a Big Difference). Journal of Business Logistics, 343, 183-188.
27. Fugate, B.S., Mentzer, J.T., and Stank, T.P., ( 2010). Logistics Performance: Efficiency, Effectiveness, and Differentiation. Journal of Business Logistics, 31/1, 43–62.
28. Gatti, R. and Vaubourg, A. (2009). Unemployment and Finance: How Do Financial and Labour Market Factors Interact? The Institute of the Study of Labor (IZA) Discussion Paper Series, Bonn, Germany.
29. Geisser, S. (1975). A predictive approach to the random effect model. Biometrika, 61/1,101–107.
30. Goldsmith, R.W. (1969). Financial Structure and Development. New Haven: Yale University Press.
31. Govindan, K. and Chaudhuri, A. (2015). Interrelationships of risks faced by third party logistics service providers: A DEMATEL based approach. Transportation Research Part E, 90, 177-195.
32. Gupta, S., and Dutta, K. (2011). Modeling of Financial Supply Chain. European Journal of Operational Research, 211/1, 47–56.
33. Haber, S.H. (1991). Industrial concentration and the capital markets: A comparative study of Brazil, Mexico, and the United States 1830– 1930. Journal of Economics History, 51/3, 559–580.
34. Haber, S.H., (1996). Capital immobilities and industrial development: A comparative study of Brazil, Mexico, and the United States, 1840–1930. Stanford University.
35. Hair, J.F., Black, W.C., Babin, B.J., Anderson, R. E., and Tatham, H.A. (2009). Multivariate Data Analysis (7th Edition). Pearson Prentice-Hall, Upper Saddle River, NJ.
36. Hair, J.F., Ringle, C.M., and Sarstedt, M. (2011). PLS-SEM: indeed a silver bullet. Journal of Marketing Theory and Practice, 19/2, 139-151.
37. Hair, J.F.Jr., Hult, G.T.M., Ringle, C.M. and Sarstedt, M. (2016). A Primer on Partial Least Squares Structural Equation Modeling (PLS-SEM). SAGE Publications. Kindle Edition.
38. Hair, Jf., Risher, J.J., Sarstedt, M., Ringle, C.M. (2019). When to use and how to report the results of PLS-SEM. European Business Review, https://doi.org/10.1108/EBR-11-2018-0203.
39. Hair, J. F., Hollingsworth, C. L., Randolph, A. B., and Chong, A. Y. L. (2017). An updated and expanded assessment of PLS-SEM in information systems research. Industrial Management & Data Systems, 117(3), 442–458, https://doi.org/10.1108/IMDS-04-2016-0130.
40. Hair, J.F., Hult, G.T.M., Ringle, C.M., Sarstedt, M., Danks, N.P., Ray, S. (2021). Partial Least Squares Structural Equation Modeling (PLS-SEM) Using R. Springer. https://doi.org/10.1007/978-3-030-80519-7
41. Hair, J. F., Hult, G. T. M., Ringle, C. M., and Sarstedt, M. (2022). A Primer on Partial Least Squares Structural Equation Modeling (PLS-SEM). 3rd Ed. Thousand Oaks, CA: Sage.
42. Hausman, W.H., Lee, H.L., and Subramanian, U. (2005). Global logistics indicators, supply chain metrics. World Bank Policy Research Working Paper No.3773.
43. Henseler, J., Ringle, C. M., and Sinkovics, R. R. (2009). The use of partial least squares path modeling in international marketing. Advances in International Marketing, 20, 277– 320.
44. Hertwig, P. and Rau, P. (2010). Risk Management in the Air Cargo Industry Revenue Management, Capacity Options and Financial Intermediation, Hamburg: Diplomica Verlag GmbH.
45. Hofmann, E. and Johnson, M., (2016). Guest editorial. International Journal of Physical Distribution and Logistics Management, 46/4.
46. International Monetary Fund (IMF), (2005). Financial Sector Assessment A Handbook Chapter 2 Indicators of Financial Structure, Development, and Soundness. Washington, D.C. http://www.imf.org/external/pubs/ft/fsa/eng/.
47. Kabak, Ö., Önsel Ekici, Ş., and Ülengin, F. (2020). Analyzing two-way interaction between the competitiveness and logistics performance of countries. Transport Policy, 98, 238–246. doi:10.1016/j.tranpol.2019.10.007
48. Katrakylidis, I., and Madas, M. (2019). International trade and logistics: An empirical panel investigation of the dynamic linkages between the logistics and trade and their contribution to economic growth. International Journal of Economics and Business Administration, 7/4, 3–21.
49. Kaufmann, D., Krayy, A. and Mastuzzi, M. (2010). The worldwide governance indicators: Methodology and analytical issues. Global Economy and Development at Brookings.
50. Kavussanos, M.G. and Visvikis, I., (2006). Derivatives and Risk Management in Shipping, 1st Edition. London: Witherbys Publishing.
51. King, R.G. and Levine, R. (1993). Finance and growth: Schumpeter might be right”, Quarterly Journal of Economics, 108, 717–738.
52. Kleindorfer, P.R. and Visvikis, I. (2007, November 9). Integration of Financial and Physical Networks in Global Logistics. Presented at the Wharton-INSEAD Alliance Conference: Network-based Strategies and Competencies, Philadelphia.
53. Koh, B.H. Wong, W.P., Tang, C.F., Lim, M.K. (2018). The double-edge resource based view of logistics performance and governance in Asian countries. Asia Pacific Journal of Marketing and Logistics. 30, 652–668.
54. Larson, P.D. (2021) Relationships between Logistics Performance and Aspects of Sustainability: A Cross-Country Analysis. Sustainability 2021. https:// doi.org/10.3390/su13020623.
55. Levine, R. (1997). Financial development and economic growth: views and agenda. Journal of Economic Literature, 35/2, 688-726.
56. Levine, R. (2005). Finance and Growth: Theory and Evidence. In Handbook of Economic Growth. Philippe Aghion and Steven Durlauf (Ed.), 865–934.
57. Levine, R. (2021). Finance, Growth and Inequality. IMF Working Paper, WP/21/164. https://www.imf.org/-/media/Files/Publications/WP/2021/English/wpiea2021164-print-pdf.ashx
58. Levine, R., and Zervos, S. (1998). Stock markets and economic growth. American Economic Review, 88/3, 537–558.
59. Malik, A. H., Isa, A. H., Jais, M., Rehman, A.U., and Khan, M.A. (2021). Financial stability of Asian Nations: Governance quality and financial inclusion. Borsa Istanbul Review, 22/2, 377-378. doi:10.1016/j.bir.2021.05.005
60. Manuj, I. and Mentzer, J.T. (2008). Global supply chain risk management strategies. International Journal of Physical Distribution and Logistics Management, 38/3, 192-223.
61. Martia, L., Puertasa, R. and Garciab, L. (2014). The importance of the Logistics Performance Index in international trade. Applied Economics, 46/24, 2982 – 2992.
62. Martin, J. And Hofmann, E. (2017). Involving financial service providers in supply chain finance practices Company needs and service requirements. Journal of Applied Accounting Research, 18/1, 42-62.
63. Mentzer, J.T., Soonhong, M. and Bobbitt, L.M. (2004). Toward a Unified Theory of Logistics. International Journal of Physical Distribution and Logistics Management, 34/8, 606–627.
64. Merton, R.C. (1995). A functional perspective of financial intermediation. Financial Management, 24/2, 23-41.
65. Merton, R.C. and Bodie, Z. (1995). A conceptual framework for analyzing the financial environment in the global financial system: A functional perspective. Dwight B. Crane et al. (Ed.). Boston, MA: Harvard Business School Press.
66. Nardo, M., Saisana, M., Saltelli, A. and Tarantola, S. (2005). Tools for Composite Indicators Building. European Commission Report EUR 21682 EN. http://publications.jrc.ec.europa.eu/repository/bitstream/JRC31473/EUR%2021682%20EN.pdf
67. OECD. (2008). Handbook on Constructing Composite Indicators Methodology and User Guide. Retrieved from https://www.oecd.org/sdd/42495745.pdf.
68. Outreville, J. F. (1999). Financial development, human capital and political stability. UNCTAD Discussion Paper No. 142.
69. PriceWaterhouseCoopers. (2013). Aviation finance, fasten your seatbelts. http://www.pwc.com/gx/en/aerospace-defence-and-security/publications/aviation-finance-fasten-your-seatbelts.jhtml.
70. Rajan, R., and Zingales, L. (1998). Financial development and growth. American Economic Review, 88, 559-551.
71. Reuttner, I, and Glass, T. (2012). The financial development index 2012: Stalled Recovery- In search of Growth, Chapter 1.1. The Financial Development Report, The World Economic Forum. Sahay, R., Cihak, M., N'Diaye, P., Barajas, A., Bi, R., Ayala, D., Gao, Y., Kyobe, A., Ngyuen, L., Saborowski, C.,
72. Svirydzenka, K., and Yousefi, S.R. (2015). Rethinking Financial Deepening: Stability and Growth in Emerging Markets. IMF Discussion Note SDN/15/08.
73. Saidi, S., Mani, V., Mefteh, H., Shahbaz, M. Akhtar, P. (2020). Dynamic linkages between transport, logistics, foreign direct Investment, and economic growth: Empirical evidence from developing countries, Transportation Research Part A: Policy and Practice, 141, 277-293
74. Schramm, H.J. (2012). Freight Forwarder’s Intermediary Role in Multimodal Transport Chain. New York: Physical-Verlog, Springer Heildelberg Dordrecht.
75. Schwab K., Zahidi, S. (2020). The Global Competitiveness Report, Special Edition 2020. World Economic Forum. https://www3.weforum.org/docs/WEF_TheGlobalCompetitivenessReport2020.pdf.
76. Silvestro, R. and Lustrato, P. (2014). Integrating financial and physical supply chains: the role of banks in enabling supply chain integration. International Journal of Operations and Production Management, 34/3, 298-324.
77. Song, H., Yu, K. and Lu, Q. (2018). Financial service providers and banks’ role in helping SMEs to access finance. International Journal of Physical Distribution and Logistics Management, 48/1, 69-92.
78. Stone, M. (1974). Cross-validatory choice and assessment of statistical predictions. Journal of the Royal Statistical Society, 36, 111–147.
79. Svirydzenka, K. (2016). Introducing a New Broad-based Index of Financial Development. IMF Working Paper WP/16/5. International Monetary Fund, Washington, DC.
80. Uyar, A., Fernandes, V., and Kuzey, C. (2021). The mediating role of corporate governance between public governance and logistics performance: International evidence. Transport Policy, 109, 37–47. doi:10.1016/j.tranpol.2021.05.023
81. Worldbank. (2022). Worldwide Governance Indicators Documentation. https://info.worldbank.org/governance/wgi/Home/Documents World Economic Forum (WEF). (2012). Financial Development Report 2012. The World Economic Forum USA Inc.
82. Zhen, X., Li, Y., Cai, G. and Shi, D. (2016). Transportation disruption risk management: business interruption insurance and backup transportation. Transportation Research Part E, 90, 51–68.