Effects of Poor Transportation on Industrial Competitiveness

Freight transportation systems in many developing countries are highly inadequate and inefficient. First, the physical infrastructure – ports, airports, and road and rail networks – is capacity constrained and poorly maintained. Second, the freight services provided by private and public sector operators tend to be limited in range, poor in quality, and often technologically obsolete. Consequently, industrial firms in these countries operate under a handicap relative to their competitors in advanced industrialized countries. However, neither the magnitude nor nature of this handicap is well understood (see, e.g., Diamond and Spence 1989; World Bank 1994a; Anas, Lee and Murray 1996). To bridge this gap in our understanding, this chapter empirically examines the costs imposed on auto firms by the poor freight transportation system in India and ascertains which of these costs the firms themselves find to be more debilitating.