IDEAS home Printed from https://ideas.repec.org/p/wbk/wbrwps/2552.html
   My bibliography  Save this paper

Inventories in developing countries : levels and determinants - a red flag for competitiveness and growth

Author

Listed:
  • Guasch, J. Luis
  • Kogan, Joseph

Abstract

Raw materials inventories in the manufacturing sector in the 1970s, 1980s, and 1990s were two to five times as high in developing countries as in the United States, despite the fact that in most developing countries real interest rates are at least twice as high. Given the high cost of capital in most developing countries, these high inventory levels have an enormous impact on the cost of doing business and on productivity and competitiveness. Poor infrastructure and ineffective regulation as well as deficiencies in market development - rather than the interest rates and uncertainty - are the main determinants of these differences. Cross-country estimates show that a one-standard-deviation improvement in infrastructure reduces raw materials inventories by 27-47 percent. Poorly functioning markets, as measured by the ratio of transfers and subsidies to GDP, are also an important factor, with a one-standard-deviation improvement leading to a 19-30 percent reduction in raw materials inventories. The authors show that these reductions in raw materials inventories are not offset by a reduction in finished goods inventories upstream. The policy implications are clear and strong. Improvements in infrastructure (roads, ports, and telecommunications) can help to significantly reduce inventory levels (and thus the cost of doing business), especially when accompanied by effective regulation and the development and deregulation of associated markets.

Suggested Citation

  • Guasch, J. Luis & Kogan, Joseph, 2001. "Inventories in developing countries : levels and determinants - a red flag for competitiveness and growth," Policy Research Working Paper Series 2552, The World Bank.
  • Handle: RePEc:wbk:wbrwps:2552
    as

    Download full text from publisher

    File URL: http://www-wds.worldbank.org/external/default/WDSContentServer/WDSP/IB/2001/03/26/000094946_01031305310524/Rendered/PDF/multi0page.pdf
    Download Restriction: no

    References listed on IDEAS

    as
    1. Antonio Estache, 1994. "World Development Report: Infrastructure for Development," ULB Institutional Repository 2013/44144, ULB -- Universite Libre de Bruxelles.
    2. La Porta, Rafael & Lopez-de-Silanes, Florencio & Shleifer, Andrei & Vishny, Robert, 1999. "The Quality of Government," Journal of Law, Economics, and Organization, Oxford University Press, vol. 15(1), pages 222-279, April.
    3. Alan S. Blinder & Louis J. Maccini, 1991. "Taking Stock: A Critical Assessment of Recent Research on Inventories," Journal of Economic Perspectives, American Economic Association, vol. 5(1), pages 73-96, Winter.
    4. Chikan, Attila, 1991. "Inventory structure in the manufacturing industry -- A cross-country comparison," International Journal of Production Economics, Elsevier, vol. 24(1-2), pages 19-27, November.
    5. Fukuda, Shin-ichi & Teruyama, Hiroshi, 1988. "Some international evidence on inventory fluctuations," Economics Letters, Elsevier, vol. 28(3), pages 225-230.
    6. Marcel Fafchamps Jan Willem Gunning & Remco Oostendorp, "undated". "Inventories, Liquidity, and Contractual Risk in African Manufacturing," Working Papers 97020, Stanford University, Department of Economics.
    7. Cuthbertson, Keith & Gasparro, David, 1993. "The Determinants of Manufacturing Inventories in the UK," Economic Journal, Royal Economic Society, vol. 103(421), pages 1479-1492, November.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. World Bank, 2005. "El Salvador : Investment Climate Assessment, Volume 1, Main Findings and Policy Recommendations," World Bank Other Operational Studies 8673, The World Bank.
    2. Asian Development Bank & World Bank & Japan Bank for International Cooperation, 2005. "Connecting East Asia : A New Framework for Infrastructure," World Bank Publications, The World Bank, number 7267, September.
    3. George Alessandria & Joseph P. Kaboski & Virgiliu Midrigan, 2010. "Inventories, Lumpy Trade, and Large Devaluations," American Economic Review, American Economic Association, vol. 100(5), pages 2304-2339, December.
    4. Li, Han & Li, Zhigang, 2013. "Road investments and inventory reduction: Firm level evidence from China," Journal of Urban Economics, Elsevier, vol. 76(C), pages 43-52.
    5. Bernardo Blum & Sebastian Claro & Kunal Dasgupta & Ignatius Horstmann, 2016. "Distribution Costs, Product Quality, and Cross-Country Income Differences," Working Papers tecipa-556, University of Toronto, Department of Economics.
    6. Gutierrez, Pedro J. & Marroquin, Eduardo F., 2006. "A Characterization of the Argentinian production sector prior to the 1998 crisis," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 35(4), pages 691-709, August.
    7. World Bank, 2005. "El Salvador : Investment Climate Assessment, Volume 2, Detailed Findings and Recommendations," World Bank Other Operational Studies 8670, The World Bank.
    8. Estache, Antonio & de la Fe, Beatriz Tovar & Trujillo, Lourdes, 2004. "Sources of efficiency gains in port reform: a DEA decomposition of a Malmquist TFP index for Mexico," Utilities Policy, Elsevier, vol. 12(4), pages 221-230, December.
    9. Chikán, Attila & Kovács, Erzsébet & Matyusz, Zsolt & Sass, Magdolna & Vakhal, Péter, 2016. "Long-term trends in inventory investment in traditional market and post-socialist economies," International Journal of Production Economics, Elsevier, vol. 181(PA), pages 14-23.
    10. Jordan Schwartz & José Luis Guasch & Gordon Wilmsmeier, 2009. "Logistics, Transport and Food Prices in LAC: Policy Guidance for Improving Efficiency and Reducing Costs," IDB Publications (Working Papers) 9324, Inter-American Development Bank.
    11. World Bank, 2010. "Logistics in Argentina : Analysis, Options and Strategies to Overcome Emerging Restrictions," World Bank Other Operational Studies 12553, The World Bank.
    12. repec:idb:idbbks:358 is not listed on IDEAS
    13. J. Luis Guasch, 2004. "Granting and Renegotiating Infrastructure Concessions : Doing it Right," World Bank Publications, The World Bank, number 15024, September.
    14. Nordås, Hildegunn Kyvik & Piermartini, Roberta, 2004. "Infrastructure and trade," WTO Staff Working Papers ERSD-2004-04, World Trade Organization (WTO), Economic Research and Statistics Division.
    15. Pablo Guerrero & Krista Lucenti & Sebastián Galarza S., 2009. "Trade Logistic and Regional Integration in Latin America & the Caribbean," IDB Publications (Working Papers) 2549, Inter-American Development Bank.
    16. Pablo Guerrero & Krista Lucenti & Sebastián Galarza S., 2009. "Trade Logistic and Regional Integration in Latin America & the Caribbean," IDB Publications (Working Papers) 9331, Inter-American Development Bank.
    17. Vivien Foster & José Luis Guasch & Luis Andrés & Thomas Haven, 2008. "The Impact of Private Sector Participation in Infrastructure: Lights, Shadows, and the Road Ahead," IDB Publications (Books), Inter-American Development Bank, number 59818, February.
    18. Luis A. Andrés & J. Luis Guasch & Thomas Haven & Vivien Foster, 2008. "The Impact of Private Sector Participation in Infrastructure : Lights, Shadows, and the Road Ahead," World Bank Publications, The World Bank, number 6545, September.

    More about this item

    Keywords

    Economic Theory&Research; Banks&Banking Reform; Environmental Economics&Policies; Transport and Trade Logistics; Common Carriers Industry;

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:wbk:wbrwps:2552. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Roula I. Yazigi). General contact details of provider: http://edirc.repec.org/data/dvewbus.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.