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Industrial Organization

Policy Study

Economic Effect of Regulatory Reform in Logistics Industry

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  • Author Kim. Jungwook, Eui-Young SHON
  • Date 2016/07/08
  • Series No. Policy Study 2016-02
  • Language Korean
SUMMARY This research reviews regulations on logistics/transportation industry and attempts to quantify the effects on GDP per capita from changes of such regulations. South Korea’s transportation industry has been gradually expanding, however, the industrial structure is still short rooted. In 2014, average number of hours worked is 5th highest and wage margin 12th smallest out of 18 industries. Furthermore, the regulations for this industry appear to be stricter than those of other industries. OECD’s logistics/transportation industry regulatory index for South Korea has been decreasing for the last 40 years but still exceeds those of EU, Japan, US, and other countries.
This paper provides supporting reasons for regulatory reforms by analyzing the ripple effects on GDP. A fixed-effect model is used to observe the influence that regulatory index of transport/logistics industry which is branched under network industry has on GDP per capita. Ratio of trade on GDP, enrollment rate to primary school, energy usage per capita, and population were the control variables in the model. OECD countries were the samples evaluated and robustness checks were conducted by separating the sample by income and non-manufacturing industries’ contribution to GDP. The transport logistics industry regulatory index was lower for countries with GDP per capita of $30,000 or above and higher for manufacturing-concentrated countries. Estimation reveals that 10% of decrease in transportation/logistics regulatory index is correlated with 2.16% increase in GDP per capita. Thus, we argue that mitigating regulations on market entries, price determination, ownership structures of network industry, vertical integrations and etc. can improve the economy of South Korea.
Since, among three categories of transportation/logistics industry, rail industry shows the highest effect from regulatory reform on the economy, this study looks into the regulations in the rail freight/passenger industry. Other countries with regulatory reform on market entry show increase in market effectiveness through lower cost and higher demand. Adopting competitive bidding or open access system might be an apposite policy allowing private companies to enter the infrastructure industry. Also, in terms of price regulation, this paper suggests railway industry higher price for passenger transport and lower price for freight transport.
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