Financial Development, Financial Globalization and Logistics Performance in Mediterranean Economies: Long-Run and Distributional Evidence

Abstract

This paper investigates the relationship between logistics performance, financial development, and financial globalization in a sample of nineteen Mediterranean countries over the period 2007-2022. Logistics performance is measured by the World Bank Logistics Performance Index (LPI), while financial development and financial globalization are proxied by composite indices. Since the global logistics survey index is not observed on a yearly basis but only in irregular intervals, interpolation is used to construct an annual panel. The most probable case is that our panel captures the medium- and long-run dynamics between the benchmarks and not short-term annual variations. The empirical specification employs second-generation panel procedures, long-run estimators, Granger-causality tests, and distribution-sensitive approaches. Significant persistence, common stochastic components, and medium- to long-run co-movement are uncovered, providing evidence for the persistent long-term co-movement of logistics performance and financial conditions. Baseline estimates of FMOLS, DOLS, and PMG-ARDL reveal positive long-run relationships for both financial development and financial globalization. Yet, domestic financial development becomes statistically weaker under more flexible treatment of cross-sectional dependence, unobserved common factors, and slope heterogeneity, whereas financial globalization receives relatively stronger support under alternative approaches. Quantile estimates shed light on further heterogeneity: domestic financial development receives relatively stronger support at the lower and intermediate quantiles and its estimated association with logistics performance monotonically decreases towards the upper end of the distribution, whereas the connection with financial globalization becomes stronger across quantiles. Overall, the results imply that domestic financial development and financial globalization are related to logistics development via different channels and through different mechanisms. To conclude, the findings highlight the necessity of controlling for common shocks, country heterogeneity and the slowly evolving nature of logistics capability when investigating the finance-logistics nexus among Mediterranean economies. JEL classification: C23, F36, G15, O18, R41. Keywords: Logistics performance, Financial development, Financial globalization, Mediterranean economies, Panel cointegration, Quantile regression.