Publication: Inventories in Developing Countries : Levels and Determinants--A Red Flag for Competitiveness and Growth
Date
2001-02
ISSN
Published
2001-02
Author(s)
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.
Link to Data Set
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;No. 2552. © World Bank, Washington, DC. http://hdl.handle.net/10986/19711 License: CC BY 3.0 IGO.”
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