BUS606: Operations and Supply Chain Management

As noted above, an important question from a trade policy perspective relates to the impact of improved logistics performance on the pattern of sectoral specialization. At its most basic, trade theory suggests that as the price of logistics services falls relative to other goods and services in the economy, those sectors that use logistics particularly intensively will tend to undergo a relative expansion. We therefore expect improvements in logistics performance to affect relative sector size, and thus the pattern of specialization across countries.

To undertake a detailed analysis of the impacts of logistics performance on sectoral patterns of specialization, it would be necessary to incorporate the sector into a fully-specified general equilibrium model, such as the Global Trade Analysis Project (GTAP). GTAP currently includes a transport sector, which could be used as a first proxy for logistics. The model could therefore provide a platform for examining possible changes in the sectoral composition of production and trade by modeling improvements in logistics performance as reductions in transport costs. To do so, however, it would first be necessary to obtain an econometric estimate of the relationship between logistics performance and transport costs. Such work has not yet been undertaken, but future research focusing either on direct measures of transport costs or omnibus measures such as the Novy index discussed above could make an important contribution to a better understanding of this area.

Although the relationship between logistics and sectoral composition is a complex one, it is possible to use basic input-output data to provide some initial information on sectors in developing countries that are likely to be particularly sensitive to logistics performance. The OECD's STAN database input-output tables provide sectorally disaggregated data on intermediate input use, from which it is possible to construct measures of logistics intensity using the narrow and broad definitions discussed above; the medium definition cannot be used due to a lack of necessary sectoral detail in the input- output tables. “Logistics intensity” is defined simply as the percentage by value of total intermediate input use accounted for by logistics services.

Table 5 lists the five most logistics-intensive sectors in 11 non-OECD countries, using the latest available input-output data from OECD STAN. The first stylized fact that emerges is clearly that each country is different when it comes to logistics intensity in production: some sectors that are strongly logistics intensive in some countries (e.g., agriculture in South Africa) do not display that characteristic in most other countries. Second, it is nonetheless apparent that some sectors are logistics-intensive in a number of economies, which suggests that modes of production are relatively similar across countries. Mining and minerals are examples. Third, a number of relatively "heavy" industries are logistics intensive in a range of countries. Boosting production and trade in such sectors relative to the rest of the economy would be consistent with the goal of export diversification in many developing countries. Recent cross-country empirical evidence indeed suggests that improved trade facilitation - of which logistics performance is an important component - can help boost export diversification.

Table 6: Top Five Logistics-intensive Manufacturing Sectors Based on Input-output Data; Non-oecd Countries.