Distribution Costs

IMF Working Papers, January 14, 2022

Source details

Distribution expenses are large: they amount to over half of labor costs.
Size-related heterogeneity in distribution shares: plants in the largest decile – relative to the smallest – spend over three times as much on distribution as a share of sales.
Time trend (2000–2010): distribution costs as a share of sales declined by one third between 2000 and 2010.
From 2000 to 2010, India saw an increase in intranational trade hand in hand with a decrease in the distribution share.

Developed a model of heterogeneous manufacturing firms that rely on the distribution sector to sell their goods across space.
Model calibrated/quantified using:
- Facts on size and systematic heterogeneity in distribution shares.
- Newly constructed estimates of intranational trade.

Accounting for firm heterogeneity in distribution requirements amplifies welfare losses from low TFP in the distribution sector by 1.5-fold.
Combined empirical trends and model calibration imply large decreases in both variable and fixed costs of distribution from 2000 to 2010.
Estimated 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

Source: IMF Working Paper "Distribution Costs" by Cian Ruane and Alessandra Peter, January 14, 2022.