This is the fourth edition of Connecting to Compete: Trade Logistics in the Global Economy. It features the Logistics Performance Index (LPI), which the World Bank has produced every two years since 2007. The LPI measures the on-theground efficiency of trade supply chains, or logistics performance. This year's edition covers 160 countries. Supply chains are the backbone of international trade and commerce. Their logistics encompasses freight transportation, warehousing, border clearance, payment systems, and increasingly many other functions outsourced by producers and merchants to dedicated service providers. The importance of good logistics performance for economic growth, diversification, and poverty reduction is now firmly established. Although logistics is performed mainly by private operators, it has become a public policy concern of national governments and regional and international organizations. Supply chains are a complex sequence of coordinated activities. The performance of the whole depends on such government interventions as infrastructure, logistics services provision, and cross-border trade facilitation. Since the first edition, the LPI has shown that good policies matter to develop efficient supply chains but also that many developing countries still lag behind. The "logistics gap" evident in the first three editions still prevails and underscores the importance of consistent policies across sectors (trade, customs, and transportation, for instance). The agenda and priorities are evolving. The imperative of facilitating trade through more transparent and consistent border clearance is now universally recognized-and set in stone in December 2013's World Trade Organization Agreement on Trade Facilitation in Bali, Indonesia. New challenges of environmental sustainability, spatial planning, and the regulation and organization of services are receiving more attention, and not only in rich and emerging countries. The LPI and its components help countries understand the challenges that they and their trading partners face in making their national logistics perform strongly. The LPI complements, rather than substitutes for, the in-depth country assessments that many countries have undertaken in recent years, and many of them with World Bank support. The LPI scores are not to be overemphasized, however-a country's actual ranking or score should not be interpreted in isolation, but instead whether it ranks among the best or worst performers. The LPI allows leaders in government, business, and civil society to better assess the competitive advantage created by good logistics and to understand the relative importance of different interventions. We hope that this fourth edition of Connecting to Compete will continue to support this broad community of policymakers and stakeholders.

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This paper shows that improved trade facilitation can help promote export diversification in developing countries. We find that 10 per cent reductions in the costs of international transport and domestic exporting costs (documentation, inland transport, port and customs charges) are associated with export diversification gains of 4 and 3 per cent, respectively, in a sample of 118 developing countries. Customs costs play a particularly important role in these results. Lower market entry costs can also promote diversification, but the effect is weaker (1 per cent). We also find evidence that trade facilitation has stronger effects on diversification in poorer countries. Our results are highly robust to estimation using alternative dependent and independent variables, different country samples, and alternative econometric techniques. We link these findings to recent advances in trade theory that emphasise firm heterogeneity, and trade growth at the extensive margin.

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We use new data on trade and production in 167 countries to infer estimates of trade costs for manufactured goods and agriculture for 1996‒2010. Trade costs are strongly declining in country income level. Among developing countries, only the upper middle income group has been successful in reducing trade costs faster than elsewhere in the world. Sub-Saharan African countries and low income countries remain subject to very high trade costs. Regional trade agreements, maritime transport connectivity, and trade facilitation performance are important determinants of trade costs.

This paper analyses the linkage between services and manufacturing productivity performance, using firm‐level data for over 100 developing countries. We find strong evidence for such a linkage, although the effect is small: at the average rate of services input intensity, a 10 per cent improvement in services productivity is associated with an increase in manufacturing productivity of 0.3 per cent. Services trade restrictiveness indices are found to be a statistically significant determinant of manufactured exports performance, a finding that is robust to the inclusion of the overall level of trade restrictiveness that is applied against manufactured exports directly. The main channel through which services trade restrictions negatively affect manufactured exports is through FDI, a finding that is consistent with the stylised fact in the literature that FDI is a key channel for trade in services and an important vehicle through which services technology and know‐how is transferred across countries. At the sectoral level, restrictions on transport and retail distribution services have the largest negative impact on exports of manufactures.

We present a new dataset of international trade costs in services sectors. Using a theory-based methodology combined with data on domestic shipments and cross-border trade, we find that trade costs in services are much higher than in goods sectors: a multiple of two to three times in many cases. Trade costs in services have remained relatively steady over the last ten years, whereas trade costs in goods have fallen overall at an impressive rate. We also present two examples of the ways in which our dataset could be used in future work. First, we examine the impact of regional trade agreements on trade costs in services. Although we find that intrabloc trade costs are lower than those facing outside countries, the differential is usually quite small for services, and in some cases has even been narrowing over time. This finding accords with the observation that because service sector reform is about re-regulation, "preferential" agreements tend to involve less discrimination than in goods markets. Second, we show for the first time that services sectors with lower trade costs tend to be more productive, and experience faster productivity growth. This result lines up well with the evidence from goods markets.JEL Codes: F13; F15.

This paper shows that the Poisson quasi-maximum likelihood estimator applied to the gravity model produces estimates in which, summing across all partners, actual and estimated total trade flows are identical. Other methods such as OLS do not have this desirable property. Indeed, Poisson is the only quasi-maximum likelihood estimator that preserves total trade flows. This result is an additional reason for preferring Poisson as a workhorse gravity model estimator.