Distribution Costs
We provide the first direct estimates of distribution expenses incurred by manufacturing plants and quantify their importance for aggregate consumption and measured misallocation. Using a novel measure from the Indian Annual Survey of Industries, we document three facts: distribution expenses amount to over half of labor costs, are over three times larger as a share of sales for plants in the largest decile relative to the smallest, and declined by one third from 2000 to 2010. We develop a model of heterogeneous manufacturing firms that rely on distribution services to sell across space. The improvements in distribution over that time period raised manufacturing consumption by 24.5%. The gains materialize quickly, but unevenly: large firms expand while many small local firms shrink or exit. Distribution costs also matter for measured misallocation: standard TFPR measures generate spurious dispersion and a positive relationship with size. In the ASI, accounting for distribution costs lowers measured TFPR dispersion by 5.1% and the elasticity of TFPR with respect to plant size by 7.0%.
-
-
Copy CitationCian Ruane and Alessandra Peter, "Distribution Costs," NBER Working Paper 35252 (2026), https://doi.org/10.3386/w35252.Download Citation
Related
More from the NBER
In addition to working papers, the NBER disseminates affiliates’ latest findings through a range of free periodicals — the NBER Reporter, the NBER Digest, the Bulletin on Health, and the Bulletin on Entrepreneurship — as well as online conference reports, video lectures, and interviews.
