## Distribution Costs

_IMF Working Papers, January 14, 2022_

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## Bibliographic details
- Authors: Cian Ruane, Alessandra Peter
- Published: January 14, 2022
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781616355036.001

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### Key empirical findings
- 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.

### Model and methodological approach
- 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.

### Quantitative impacts and welfare implications
- 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 areas and keywords
- 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.*

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_Source: https://www.imf.org/en/publications/wp/issues/2022/01/14/distribution-costs-510845_