BUS613: Advanced International Business

Trade between nations has always made a significant contribution in terms of increasing wealth among the world population. Today, over 80% of all trade is seaborne. World merchandise trade volumes have grown at a modest rate of 2.3% in 2014 following the global gross domestic product (GDP) growth rate of 2.5%, indicating a strong correlation between trade and GDP. The history of urban development also reveals that economic advancement is especially apparent in cities with seaports.

Globalisation of complex industrial production processes has increased the importance of seaports in the global supply chain. Port activity is no longer limited to just cargo handling; logistics service provision in an international context has become a core part of the business. In this situation, the most imperative aspects of logistics performance are logistics costs and reliability of supply chains. Poor logistics facilitation takes a large toll on a country's competitive advantage, and insights in this respect were conferred by Arvis et al.. In a world of just-in-time production processes, it is not only the time and cost of delivery of shipments that matters, but also its reliability and predictability. A firm's hedging costs due to poor reliability and predictability of logistics services can be significantly high in terms of higher inventory maintenance requirements. The trade-off between direct freight costs and reliability varies depending on a country's commodity trade and logistics performance, which can limit the potential of developing countries to diversify from time-insensitive commodities to value-added goods. Despite such significance, the impacts of port infrastructure quality, and logistics performance on a country's trade and economy have been largely overlooked in the existing port economics literature.

Economic impact studies in general are essential for justifying the economic contribution of large infrastructure facility developments. "They are especially controversial when used prospectively to justify public subsidy or extraordinary planning permission". Therefore, the aim of port impact studies is to inform the general public about the economic contribution of ports. This aim alone is not a small task, as ports facilitate socio-economic infrastructure and generate external economies that are often not visible to the general public, but consent is required whenever port facilities are established or expanded. Today, it remains undecided as to whether or not ports contribute to their surrounding national or regional economies. Some researchers have noted that ports stimulate the economic growth of a country or region, whereas others have argued that ports do not play any key role therein. The constant decline in the number of jobs at ports due to automation and the containerisation of goods has extricated the direct economic contribution of ports.

Meanwhile, many countries are planning to build up regional hub ports, following successful cases such as Singapore, Shenzhen, Hong Kong, Dubai, to name a few, and expecting additional growth of their economies in forms of new service markets. This could be aided by developing transshipment facilities and efficient transport networks. However, the port–city relationship has changed and the urban structure of cities is no longer important for explaining the intensity and spatial distribution of maritime transport networks. Slack and Gouvernal argued that the potential for economic development through hub port development is more limited than suggested in most maritime literature. Due to structural changes in the global shipping industry, neither a port's throughput projection nor its economic contribution performs with the degree of certainty expected by the planners. Also, the demolition of the shipping conference system in 2008 and the global financial crisis in 2009 hit the shipping industry adversely. According to Grossmann, "economic growth has shifted to newer economic sectors which require investments into different locational factors, a high quality of life and an attractive, well-function (sic) city-core" (p. 2063). Hence, before investing millions of dollars in building up or expanding port infrastructure, it is important to understand the extent to which ports impact national or regional economies.

Ng pointed out that, with present port research concentration on day-to-day port operations (that is, port performance and competition, port management and governance, ports and supply chains), research on port-region relationships has decreased considerably since the 1990s. In order to address the significance of port infrastructure quality, logistics performance, and seaborne trade, the present study investigates the following research questions (RQs): (1) Does the port infrastructure quality, logistics performance, and seaborne trade of a country have any significant impact (positive or negative) on the country's economy? (2) Does the impact differ between developed and developing economies? To answer RQ1, a structural equation model (SEM) is developed to analyse how port infrastructure and logistics performance of a country affects seaborne trade, as well as the economy of a country. To answer RQ2, a multi-group SEM is formed considering two groups: developed and developing economies.

Section 2 presents a comprehensive literature review of port economic impact studies and the conceptual framework of this study. In Section 3, data and methodological issues are discussed, before the results of the empirical analysis are presented in Section 4. Section 5 discusses policy implications of the findings and concludes with future research directions.