A key question in development economics is why MNCs do not always locate production in places with the lowest input costs. Most attempted explanations have at their core that low productivity results in high unit costs despite low input costs. A complementary perspective is that production need not only be cheap, but also reliable. This perspective fits well with the emphasis in the supply chain literature on reliable deliveries, the growing complexity and sensitivity of global supply chains, and the great concern firms express about uncertainty. This project explores the effect of uncertain delivery times of on the efficiency of manufacturing.
Using models from operations literature on supply chain management and data on the distribution of delivery times for transports in East Africa, the researchers will evaluate the change in long-run average costs achieved by reducing delivery uncertainty from African levels to European levels (specifically delivery times from Rotterdam). This will allow for an estimate of the extent to which uncertain delivery times damage African competitiveness.
By creating a novel connection between industrial organization, operations research, trade, and development economics, this project aims to understand the costs of poor infrastructure and processing on export industries and the way in which these costs can affect the scale and types of industries that locate in certain regions. A clear understanding of the impact of uncertainty in transport times on different industry sectors can help motivate policy for reducing uncertainty such as infrastructural improvements or changes to port and customs processing procedures.