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Just-in-case inventories - a cross-country analysis

  • Guasch, J. Luis
  • Kogan, Joseph
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    The authors find that raw materials inventories in the manufacturing sector in the 1970s and 1980s were two to three times higher in developing countries than in the United States, despite the fact that in most developing countries real interest rates were at least twice as high. Those significantly high levels of inventories are a burden and an obstacle to country competitiveness and need to be addressed. Poor infrastructure and ineffective regulation, as well as deficiencies in market development, rather than the traditional factors used in inventory models (such as interest rates and uncertainty), are the main determinants and explain these differences. Cross-country estimations show that a one standard deviation worsening of infrastructure increases raw materials inventories by 11 percent to 37 percent, and a one standard deviation worsening of markets increases raw materials inventories by 18 percent to 37 percent. These findings are robust across a number of different proxies and specifications, including an industry-level specification that controls for fixed country effects.

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    Paper provided by The World Bank in its series Policy Research Working Paper Series with number 3012.

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    Date of creation: 30 Apr 2003
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    Handle: RePEc:wbk:wbrwps:3012
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    1. Marcel Fafchamps & Jan Willem Gunning and Remco Oostendorp, 1999. "Inventories and risk in African manufacturing," Economics Series Working Papers WPS/1999-19, University of Oxford, Department of Economics.
    2. Rafael LaPorta & Florencio Lopez-de-Silanes & Andrei Shleifer & Robert Vishny, . "The Quality of Government," Working Paper 19452, Harvard University OpenScholar.
    3. 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.
    4. Antonio Estache, 1994. "World Development Report: Infrastructure for Development," ULB Institutional Repository 2013/44144, ULB -- Universite Libre de Bruxelles.
    5. Fukuda, Shin-ichi & Teruyama, Hiroshi, 1988. "Some international evidence on inventory fluctuations," Economics Letters, Elsevier, vol. 28(3), pages 225-230.
    6. Fandel, Gunter & Reese, Joachim, 1991. "Just-in-Time logistics of a supplier in the car manufacturing industry," International Journal of Production Economics, Elsevier, vol. 24(1-2), pages 55-64, November.
    7. Cuthbertson, Keith & Gasparro, David, 1993. "The Determinants of Manufacturing Inventories in the UK," Economic Journal, Royal Economic Society, vol. 103(421), pages 1479-92, November.
    8. 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.
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