Just-in-Case Inventories: A Cross-Country Analysis

31 Pages Posted: 20 Apr 2016

See all articles by J. Luis Guasch

J. Luis Guasch

World Bank - Finance, Private Sector and Infrastructure Sector (LCSFP)

Joseph Kogan

Lehman Brothers, New York

Date Written: April 2003

Abstract

Guasch and Kogan 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.

This paper - a product of the Finance, Private Sector, and Infrastructure Unit, Latin America and the Caribbean Region - is part of a larger effort in the region to improve country competitiveness.

Suggested Citation

Guasch, José Luis and Kogan, Joseph, Just-in-Case Inventories: A Cross-Country Analysis (April 2003). World Bank Policy Research Working Paper No. 3012. Available at SSRN: https://ssrn.com/abstract=636374

José Luis Guasch (Contact Author)

World Bank - Finance, Private Sector and Infrastructure Sector (LCSFP) ( email )

1818 H Street, NW
Washington, DC 20433
United States
202 473 8606 (Phone)
202 522 2106 (Fax)

Joseph Kogan

Lehman Brothers, New York ( email )

745 Seventh Avenue
New York, NY 10019
United States

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