Better international logistics raise a developing country's exports, but the magnitude of the effect depends on the country's size. We apply a gravity model that accounts for firm heterogeneity and multilateral resistance to an international logistics index. A one standard deviation improvement in logistics is equivalent to a 14% reduction in distance. An average‐sized developing country would raise exports by approximately 36%. Most of the countries are much smaller than average, so the typical effect is 8%. This difference is chiefly due to the dampening effect of multilateral resistance, which is more important for small countries.

The Policy Research Working Paper Series disseminates the findings of work in progress to encourage the exchange of ideas about development issues. An objective of the series is to get the findings out quickly, even if the presentations are less than fully polished. The papers carry the names of the authors and should be cited accordingly. The findings, interpretations, and conclusions expressed in this paper are entirely those of the authors. They do not necessarily represent the views of the International Bank for Reconstruction and Development/World Bank and its affiliated organizations, or those of the Executive Directors of the World Bank or the governments they represent. Policy Research Working Paper 5691Do better international logistics reduce trade costs, raising a developing country's exports? Yes, but the magnitude of the effect depends on the country's size. The authors apply a gravity model that accounts for firm heterogeneity and multilateral resistance to a comprehensive new international logistics index. A onestandard deviation improvement in logistics is equivalent to a 14 percent reduction in distance. An average-sized This paper is a product of the Trade and Integration Team, Development Research Group. It is part of a larger effort by the World Bank to provide open access to its research and make a contribution to development policy discussions around the world. Policy Research Working Papers are also posted on the Web at http://econ.worldbank.org. The author may be contacted at abehar@imf.org.developing country would raise exports by about 36 percent. Most countries are much smaller than average however, so the typical effect is 8 percent. This difference is chiefly due to multilateral resistance: it is bilateral trade costs relative to multilateral trade costs that matter for bilateral exports, and multilateral resistance is more important for small countries.