Distribution Costs

January 14, 2022

Preview Citation

Format: Chicago

Cian Ruane, and Alessandra Peter. Distribution Costs, (USA: International Monetary Fund, 2022) accessed November 21, 2024

Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

We provide the first direct estimates of distribution expenses incurred by manufacturing plants and assess their importance for aggregate output. Using a novel measure from the Indian Annual Survey of Industries, we document three key facts: (1) distribution expenses are large – they amount to over half of labor costs; (2) plants in the largest decile – relative to the smallest – spend over three times as much on distribution as a share of sales; and (3) between 2000 and 2010, distribution costs as a share of sales declined by one third. We develop a model of heterogeneous manufacturing firms that rely on the distribution sector to sell their goods across space. We quantify the model using the facts on size and systematic heterogeneity in distribution shares as well as newly constructed estimates of intranational trade. Accounting for firm heterogeneity in distribution requirements is important: welfare losses from low TFP in the distribution sector are amplified 1.5-fold. From 2000 to 2010, India saw an increase in intranational trade hand in hand with a decrease in the distribution share. In combination with the model, these trends suggest largescale decreases in both variable and fixed costs of distribution, leading to welfare gains of 58% over this ten year period.

Subject: Consumption, Economic sectors, Manufacturing, National accounts, Production, Productivity, Total factor productivity

Keywords: Aggregate productivity, Consumption, Distribution, Distribution expense, Distribution sector, Distribution share, Labor costs, Manufacturing, Productivity, Share of sales, Total factor productivity, Transportation costs, Welfare loss

Publication Details

Pages:

40
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2022/007
Stock No:

WPIEA2022007
ISBN:

9781616355036
ISSN:

1018-5941

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