Inventories and logistic costs in developing countries: levels and determinants, a red flag on competitiveness and growth

  • José Luis Guasch World Bank Group
  • Joseph kogan Harvard University


Countries in Latin America and elsewhere are aggressively opening markets for their products through bilateral treaties and pursuing
export-led strategies. Yet to fully capitalize on the benefi ts of those strategies, countries need much more improved logistics. Logistics
are signifi cantly high in Latin America and a signifi cant component of those costs are inventory levels. Then the need to reduce those types
of costs. We fi nd that raw materials inventories in the manufacturing sector in the 1970s and 1980s and 1990s were two to fi ve times higher
in developing countries than in the United States, despite the fact than in most developing countries real interest rates are at least twice as
high. Given the high costs of capital in most developing countries, the impact of those high inventory levels on the cost of doing business, and
productivity/competitiveness is enormous. Poor infrastructure and ineffective regulation as well as defi ciencies 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 27% to 47%. Poor functioning markets, as measured by the ratio of transfers and subsidies to GDP, are also an important
factor with a one standard deviation change leading to a 19% to 30% increase in raw materials inventories. We show that these increases
in raw materials inventories are not offset by a decrease in fi nished goods inventories upstream. The policy implications are clear and
strong, improvements in infrastructure and logistics, better regulation and development and deregulation of markets.


La descarga de datos todavía no está disponible.