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Attila Chikán · Erzsébet Kovács
Zsolt Matyusz · Magdolna Sass
Péter Vakhal

Inventories
in National
Economies
A Cross-Country Analysis of
Macroeconomic Data
Inventories in National Economies
Attila Chikán Erzsébet Kovács
•

Zsolt Matyusz Magdolna Sass

•

Péter Vakhal

Inventories in National
Economies
A Cross-Country Analysis of Macroeconomic
Data

123
Attila Chikán Magdolna Sass
Corvinus University of Budapest Centre for Economic and Regional Studies
Budapest Hungarian Academy of Sciences
Hungary Budapest
Hungary
Erzsébet Kovács
Corvinus University of Budapest Péter Vakhal
Budapest Kopint-Tárki Institute for Economic
Hungary Research Co.
Budapest
Zsolt Matyusz Hungary
Corvinus University of Budapest
Budapest
Hungary

ISBN 978-1-4471-7369-4 ISBN 978-1-4471-7371-7 (eBook)

https://doi.org/10.1007/978-1-4471-7371-7
Library of Congress Control Number: 2018934891

© Springer-Verlag London Ltd., part of Springer Nature 2018

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Preface

Are they really important? Inventory investments are just a tiny part of GDP
spending: in developed economies, their share fluctuates around 1%, which is
hardly observable among the much higher figures of private and government
consumption, fixed assets investment and foreign trade.
Nevertheless, economists do not look at just the magnitude: they generally
consider those factors very important in the economy which signal changes, and
inventories are among the fastest and most flexible indicators of shifts in economic
processes. Indeed, there is a rich literature analysing the regularities of inventory
fluctuations, most of all the role of inventories in economic cycles. This literature
includes a number of results on comparison of cycles in different countries, digging
deep in order to find both the theoretical explanations of the general characteristics
of cyclic behaviour and the specialties which drive the behaviour of individual
countries.

Subject

The authors of this book approach the macrolevel inventory problem from a dif-
ferent point of view. Our earlier research revealed that one can find interesting
things when looking—instead of short- or middle-term fluctuation—at the
long-term formation of national-level inventories. In the framework of the project
leading to this book, we wanted to discover: are there general rules of national
inventory investments, and can we find characteristic factors leading to higher—or,
in other cases—lower level of inventories in the different countries? Are there
identifiable global trends or inventory formation depends only on national eco-
nomic or even also non-economic processes? Do macroeconomic features (like
stability or growth) play the key role, or sectoral characteristics are more important?
What is the influence of general business trends, most notably firm-level inventory
management? Can we identify groups of countries with similar inventory behaviour

v
vi Preface

and what are common characteristics of those countries, which belong to the same
“inventory cluster”?
After overviewing several theoretical and practical aspects, we have chosen to
limit our study to the well-identifiable group of most developed countries: members
of the Organization for Economic Cooperation and Development (OECD). Besides
the very reasonable aspects of data availability and quality, we thought that we can
get closer to our objective: concentrating on the characteristics of national inventory
investment if we do not have to screen for large differences in the level of devel-
opment. Of course, OECD economies are not alike either—however, in many
aspects (like in the quality of institutions or the development of infrastructure), they
are relatively close or at least comparable with each other.
A very serious problem we had to overcome is the quality of the available data.
It is quite clear that in any cross-country comparison there can be doubts about the
validity of the data sets serving as foundation of the analysis. As for inventories, the
queries can be even more legitimate than in some other cases, considering the
country-wise differences in inventory accounting. We are aware of these differ-
ences. However, we hoped to overcome this problem by using long time series on
the one hand, and relative, instead of absolute indicators on the other hand.
However, we are rather cautious in drawing conclusions in order to avoid mistakes
of false statements.

Structure

The structure of this book is the following: after a short introduction (Chap. 1)
explaining the importance of inventory holding in the economy, we give an
extended review of the literature (Chap. 2). Even though there are rather few
sources which we could use directly in our analysis, we considered it important to
show how many different aspects of macroeconomic inventories were researched in
the last few decades. As a general conclusion, we can state that there are mostly
isolated results, and one can hardly find any systematic analyses of inventories in
the literature.
In Chap. 3, we put down the principles of country and data selection and some
fundamentals of the methodology. Chapter 4 provides the core statistical analysis of
our research. We compare inventory behaviour and its influencing factors in the 20
OECD economies for which we had data for the full 1970–2013 time period, and
then, we test the results’ stability by adding to the analysis 12 more countries for
which we had data only for a shorter period, namely between 1994 and 2013. For
the 20 “core countries”, cluster analysis and stability test are carried out, and then,
the sectorial structure and cyclic behaviour of inventory investments are analysed.
Chapter 5 contains an analysis of those macroeconomic phenomena which we
use for explanation of inventory behaviour to see how stable is the background
of the analysis. In Chap. 6, we give a detailed description of inventory behaviour in
the individual countries. This part connects national inventory holding to global
Preface vii

economic processes and country-wise economic policies. Chapters 4 and 6 are the
pillars of our research results. Chapter 7 summarizes the results of this book and
provides general conclusions.
We see our analysis as kind of a groundbreaking work in a branch of macroe-
conomic inventory analysis. We certainly hope that some colleagues worldwide
will find the approach and the results appealing enough to go on with studying the
many open questions of the field.

Focuses and Takeaway

Our extensive review of the literature clearly reveals that there are very important
and interesting results in the field of macroeconomic inventory problems. However,
when one tries to integrate these results, he/she will find that they are very diverse
in their many important starting assumptions as well as in their conclusions. It is
hard to classify the hypotheses and the models, and it is even harder to summarize
the results.
Our book does not attempt to be a fully comprehensive analysis of the many
open macroeconomic inventory issues. However, we believe that some of the
results help to evaluate important empirical phenomena (such as through the
comparison of inventory behaviour in different countries or finding links between
macro- and microeconomic factors). It may help forecasting inventory investment
in various countries and prepares the ground for further research.
One of the unique features of our work is that unlike the vast majority of
literature we focus on long-term (over four decades) developments and explain the
long-term characteristics of national inventory behaviour. Both economic consid-
erations and the availability of data led us to examine inventory investment char-
acteristics of various countries through observing what proportion of the annual
GDP is invested into inventories. The long time series of inventory investment
actually show us the level of inventories with which a country operates, since
clearly the current inventory level is the sum of inventory investments of past years.
The importance of our analysis is underlined by the fact that the inclusion of
inventories into some macroeconomic models in many cases substantially changes
the results obtained in the “inventory-free” model. This is a clear indication of the
presence of some inventory-related factors in the causality chain. We disclose some
of such factors and call attention to their impact on the course of events. Having
read the book, one should be convinced about the fruitfulness of including
inventories in macroeconomic studies.
It was more than twenty years ago when the International Society for Inventory
Research (ISIR) organized a two-day workshop on the relationship between macro-
and microeconomic inventory research with the participation of many of the most
influential inventory scholars of the time. The workshop was inspired by two
seminal papers (Blinder-Maccini 1991 and Lovell 1994, see references at the end
of the literature review) and drew the conclusion that there are two main reasons for
viii Preface

the existence of the macro–micro gap: (i) the fundamentally different paradigm
behind the two research fields and (ii) the lack of micro-based research of
macroeconomic phenomena. Our book provides several important and historically
supported clues for the importance of the micro–macro analysis and hopefully puts
down some fundamentals for this line of research.
We extend our work also to the opposite direction: while most of the literature
focuses solely on country developments, we put an emphasis also on those global
effects which influence several or all countries in our sample. We deal with
inventory-related consequences of the oil crises, the manufacturing revolution, the
process of globalization or the great moderation as well as the transition of
Central-Eastern European countries from planned to market economies.
Clustering the countries in time and space according to their inventory behaviour
and the changes of the clusters shed light on “inventory connections” between
different countries and on the impact of different historical events (such as common
characteristics of countries in the same “inventory cluster” and the explanation for
changing cluster structures).
A very important result of our research is the presentation of the change of
inventory behaviour in the process of transition from planned to market economies.
The fundamental difference of inventory behaviour in the alternative systems has
been well documented for a long time—our research not only exposed how fast
inventories in the new market economies have been adjusted but explicitly shows
that they are following the same pattern as traditional market economies, at a lower
level of efficiency. This is (i) an important contribution to understanding the basic
differences between the two systems and (ii) an important verification of our
findings about the general nature of macroeconomic inventories.
As we describe it in the introduction, volatility is an intrinsic characteristic of
inventories. So even though we focused mainly on the stable characteristics of
inventories, we had to deal with the fluctuations as well. We exposed several reg-
ularities of inventory formation over time and over countries, some of these are
related to global developments some others to country characteristics. Understanding
the differences between these two types of effects is very important for a correct
analysis of situation in any countries. Having studied the rich inventory cycle litera-
ture, we found it useful to apply a methodology still unused in this area which
connects our macroeconomic approach to traditional inventory cycle research and
confirms the usefulness of studying the connection between inventory investments
and other macroeconomic variables.

Budapest, Hungary Attila Chikán

Erzsébet Kovács
Zsolt Matyusz
Magdolna Sass
Péter Vakhal
Acknowledgements

Authors of this book express grateful thanks and appreciation to two colleagues
who reviewed the book in an earlier phase of its preparation: István Kónya,
Professor of Economics of Central European University, and Miklós Szanyi,
Director of Institute of World Economics of the Hungarian Economy of Sciences.
Their many helpful comments and suggestions helped to find proper focuses and to
work out details and greatly improved the quality of our material. Of course, they
are not responsible for the flaws and errors remained.
We kindly acknowledge also the extended and high-quality assistance provided
by Szilvia Varga in the technical preparation of the manuscript.

ix
Contents

1 Introduction: The Nature and Structure of the Inventory

Problem . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 Definition of Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 Reasons for Inventory Holding . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.3 Inventories in the Economy: A Holistic View . . . . . . . . . . . . . . . 4
1.3.1 The Item-Level Inventory Problem . . . . . . . . . . . . . . . . . . 5
1.3.2 Inventories at the Firm Level: Inventory
Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 6
1.3.3 National Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 7
1.4 Focuses of Macroeconomic Inventory Analysis: Level, Structure
and Fluctuation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
1.4.1 Inventory Level . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
1.4.2 Inventory Structure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
1.4.3 Inventory Fluctuations . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
1.5 Macroeconomic Inventory Trends . . . . . . . . . . . . . . . . . . . . . . . . 10
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
2 Review of the Literature . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 13
2.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 13
2.2 Analysis of Inventories at the Firm Level . . . . . . . . . . . . . . . . .. 14
2.2.1 Models of Inventory Behaviour of the Firms in General:
Theories and Empirics . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
2.2.2 Special Issues in Firm–Inventory Relations . . . . . . . . . . . . 19
2.3 Consumer Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
2.4 Inventory Analysis at the Sector or Industry Level . . . . . . . . . . . . 26
2.5 Inventory Analysis at the Macrolevel . . . . . . . . . . . . . . . . . . . . . . 29
2.5.1 Inventory Cycles, Inventories and Business Cycles . . . . . . 29
2.5.2 Macromodels and Inventories . . . . . . . . . . . . . . . . . . . . . . 32
2.5.3 Connection of Inventories and Other Macrovariables . . . . . 34

xi
xii Contents

2.5.4 Inventory Trends and Global Processes . . . . . . . . ....... 37

2.5.5 Macroinventories in Individual Countries . . . . . . ....... 45
2.5.6 Inventory Behaviour in International Comparison ....... 49
2.6 Inventories in the Socialist or Planned Economy and in
Transition from the Planned to Market Economy . . . . . . ....... 53
2.7 Measurement, Data Problems and Methodology . . . . . . . ....... 55
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ....... 61
3 Methodology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ....... 73
3.1 Country and Data Selection . . . . . . . . . . . . . . . . . . . . . . ....... 73
3.1.1 Choosing the Data Source . . . . . . . . . . . . . . . . . ....... 73
3.1.2 Specifying the Proper Time Horizon and the Set
of Countries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
3.1.3 Sub-samples (Country-Wise and Temporal) . . . . . . . . . . . . 75
3.1.4 Variables in the Analysis . . . . . . . . . . . . . . . . . . . . . . . . . 76
3.1.5 Missing Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
3.2 Statistical Methodology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82
4 Analysis of Inventory Behaviour of OECD Countries . . . . . . . . . . .. 85
4.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 85
4.2 Aggregate Inventory Behaviour (1970–2013) . . . . . . . . . . . . . . .. 85
4.2.1 Aggregate Behaviour of Mean of dI/GDP
of 20 TMEs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 85
4.2.2 Aggregate Behaviour of Standard Deviation of dI/GDP
of 20 TMEs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 88
4.2.3 Aggregate Inventory Behaviour of 20 + 6 + 6 Economies
for 1994–2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91
4.2.4 Country dI/GDP Characteristics . . . . . . . . . . . . . . . . . . . . 93
4.3 Correlation of dI/GDP and Influencing Factors . . . . . . . . . . . . . . . 101
4.4 Cluster Analysis of 20 TMEs (1970–2013) . . . . . . . . . . . . . . . . . 103
4.5 Stability of Macroeconomic Indicators: An Entropy-Based
Approach . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 112
4.5.1 Concept of Stability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 112
4.5.2 Stability of Macroeconomic Indicators . . . . . . . . . . . . . . . 114
4.5.3 Comparison of Entropies and Coefficient
of Variation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 117
4.6 Sectoral Analysis of 20 TMEs . . . . . . . . . . . . . . . . . . . . . . . . . . . 120
4.6.1 Overall Sectoral Correlations . . . . . . . . . . . . . . . . . . . . . . 120
4.6.2 Cluster Analysis of Sectoral Characteristics . . . . . . . . . . . . 121
4.6.3 Analysis of Cluster 2 Sub-clusters . . . . . . . . . . . . . . . . . . 127
4.6.4 Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 137
Contents xiii

4.7 Inventory Cycles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 138

4.7.1 Autoregressive State Space Modelling of Inventory
Investment Processes . . . . . . . . . . . . . . . . . . . . . . . . . . . . 140
4.7.2 Introduction of Exogenous Variables . . . . . . . . . . . . . . . . 143
4.7.3 Convergences . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 146
4.7.4 The Nature of Inventory Cycles . . . . . . . . . . . . . . . . . . . . 147
4.7.5 Phase Shift . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 151
4.7.6 Spectral Dependencies . . . . . . . . . . . . . . . . . . . . . . . . . . . 155
4.7.7 Country-Wise Coherence . . . . . . . . . . . . . . . . . . . . . . . . . 159
4.7.8 Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 159
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 166
5 Stability of Macroeconomic Variables . . . . . . . . . . . . . . . . . . . . . . . . 167
5.1 Stability of Macroeconomic Variables of 20
TMEs (1970–2013) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 167
5.1.1 Components of GDP Expenditure . . . . . . . . . . . . . . . . . . . 168
5.1.2 Other Macroeconomic Indicators . . . . . . . . . . . . . . . . . . . 177
5.1.3 Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 193
5.2 Stability of Macroeconomic Variables
(6 TMEs + 6 PSEs, 1994–2013) . . . . . . . . . . . . . . . . . . . . . . . . . 195
5.2.1 GDP Components . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 195
5.2.2 Other Macroeconomic Variables . . . . . . . . . . . . . . . . . . . . 206
Reference . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 231
6 Inventory Developments in Individual Countries . . . . . . . . . . . . . . . 233
6.1 20 TMEs (1970–2013) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 233
6.1.1 Australia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 233
6.1.2 Austria . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 236
6.1.3 Belgium . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 239
6.1.4 Canada . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 242
6.1.5 Denmark . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 244
6.1.6 Finland . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 246
6.1.7 France . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 249
6.1.8 Germany . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 252
6.1.9 Iceland . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 254
6.1.10 Israel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 256
6.1.11 Italy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 259
6.1.12 Japan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 261
6.1.13 Korea (South) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 264
6.1.14 The Netherlands . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 266
6.1.15 New Zealand . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 269
6.1.16 Norway . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 272
6.1.17 Spain . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 274
6.1.18 Sweden . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 277
xiv Contents

6.1.19 United Kingdom . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 280

6.1.20 United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 282
6.2 6 + 6 Country Analysis (1994–2013) . . . . . . . . . . . . . . . . . . . . . . 286
6.2.1 Country Studies of 6 TMEs . . . . . . . . . . . . . . . . . . . . . . . 286
6.2.2 Country Analysis of six PSEs . . . . . . . . . . . . . . . . . . . . . . 294
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 301
7 Summary and Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 305
7.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 305
7.2 Review of Literature . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 305
7.3 Statistical Data and Methodology . . . . . . . . . . . . . . . . . . . . . . . . 306
7.4 Analysis of Inventory Behaviour in 32 OECD Countries . . . . . . . 307
7.4.1 Aggregate Inventory Behaviour . . . . . . . . . . . . . . . . . . . . 307
7.4.2 Correlations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 308
7.4.3 Cluster Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 309
7.4.4 Stability of Macroeconomic Indicators: An Entropy
Based Approach . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 310
7.4.5 Sectoral Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 310
7.4.6 Inventory Cycles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 311
7.5 Stability of Macroeconomic Variables . . . . . . . . . . . . . . . . . . . . . 312
7.6 Country Studies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 313
7.7 Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 313
Chapter 1
Introduction: The Nature and Structure
of the Inventory Problem

This part is an introduction of the concept and role of inventories in the economy.
We explain why holding inventories is a necessary component of economic activity
and why item-level, firm-level and national-level inventories present themselves as
natural focuses of analysis. Reasons of holding inventories on these three levels are
discussed. Item-level inventories are hold to meet specific demand components,
firm-level inventories are subject to company management as an important con-
tribution to smooth and cost-effective operation, while national inventories are
aggregates of lower-level inventories influenced by the structure of the economy
and economic policy factors. Our attention is focused in this book on national
inventories, three characteristics of which can be analysed: level, change and
fluctuation. We provide reasons why we find analysing long-term trends of national
inventories as a useful contribution to our general knowledge of operation of the
economies.

1.1 Definition of Inventories

The literature on inventories provides a number of various definitions of invento-

ries. However, there is little difference between authors about the essence.
According to common understanding—theoretically speaking—inventories are
stocks of physical goods when they are held with an economic reason, in order to
meet some future demand. Of course, there are many other kinds of stocks in
society and nature. A very general approach is exemplified the following way:
The human lifetime is unsteady and finite. For the duration of their lives, humans strive to
safeguard, as long as is possible, their existence. They do so by using natural structures and
by creating additional ones. Both feature a certain durability and thus help to maintain this
existence. Put very generally, such structures can be termed “stocks”. (Faber et al. 2005)

© Springer-Verlag London Ltd., part of Springer Nature 2018 1

A. Chikán et al., Inventories in National Economies,
https://doi.org/10.1007/978-1-4471-7371-7_1
2 1 Introduction: The Nature and Structure of the Inventory Problem

While the expression of “stock” has a more general meaning in economics and business
literature, it is often used interchangeably with the word “inventory”.

Turning to a more practical approach, we adopt the definition given by the

United Nation’s “System of National Accounts” (1993), which says that inventories
consists of “(a) stocks of outputs that are still held by the units that produced them
prior to their being further processed, sold, delivered to other units or used in other
ways; (b) stocks of products acquired from other units that are intended to be used
for intermediate consumption or for resale without further processing”.
This very elaborated definition is completely in line with the slightly philo-
sophical one given above. It makes sense to add that economics and business
literature usually provide much less sophisticated but essentially the same defini-
tions, like “inventory is an asset that is owned by a business that has a purpose of
being sold to a customer” (thefreedictionary.com) or “The value of materials and
goods held by an organization (1) to support production (raw materials,
sub-assemblies, work-in-process), (2) for support activities (repair, maintenance,
consumables), or (3) for sale or customer service (merchandise, finished goods,
spare parts).”
(http://www.businessdictionary.com/definition/inventory.html#ixzz2T1TXOgfb),
and from an economics textbook: “Firms invest in inventories, which are produced
goods held in storage in anticipation of later sales. Firms also stockpile raw materials
and intermediate goods used in the production process. Goods held in inventories
are counted for the year produced, not the year sold”, (http://www.colorado.edu/
economics/courses/econ2020/section6/GDP-components.html).
In this book, in accordance with the core economics and business literature the
word inventory always refers to a stock which has economic value because of the
(potential) demand which led the economic actors to pile them up.
It is important to say a few words separately about the concept of inventory
investment, which basically means the act of building up (or, occasionally, down
this means disinvestment) inventories. Inventory investment as a term has a double
meaning, since it means both adding new physical elements to the stock and also
securing financial assets to cover the value of physical goods. In economics liter-
ature and especially in national accounts statistics, the term “changes in invento-
ries” is often use to cover both increase and decrease the level of inventories. It
should be clearly noted that while inventory is a stock, inventory investment (or
inventory change) is a flow.

1.2 Reasons for Inventory Holding

Inventories are everywhere in the economy, they are natural part of daily life. We
can usually give reasons of holding any particular item on inventory. However, if
we want to explain why inventories are of so fundamental importance in the
economy, we have to go back to the basics of the operation of society.
1.2 Reasons for Inventory Holding 3

The ultimate general purpose of economic activity is to meet the needs of human
society. Under circumstances of scarcity of resources (which is a common char-
acteristic feature of the world), the effectiveness of operations and activities is of
crucial importance to achieve the highest possible level of satisfaction of needs. We
know since Smith (1776) that a fundamental precondition of effectiveness of
meeting social needs under the circumstances of scarce resources is a proper dis-
tribution of labour which makes specialization possible and through that striving for
the highest possible maximum utilization of capacities and capabilities.
The distribution of labour, among other consequences, leads to separation of
elements of the need fulfilment processes (production and distribution of goods and
services) both in space and time.
Under normal and general circumstances, it is neither physically feasible nor
economically rational to produce goods exactly when and where needs arise to use
them. (The case of services is rather different. However, since services are usually
not storable, this does not prevent to use general argument for holding inventories.)
The separation of elements of the need fulfilment processes inevitably leads to
the necessity of keeping stocks between the various phases of processes in order to
avoid disruptions and their undesired consequences. To keep inventories therefore
is a kind of physical necessity, as a consequence of unavoidable discontinuities in
the material processes of the economy. This necessity is present in any society built
on the distribution of labour.
However, in any modern society there is another root of necessity of inventory
holding. The reason is that as a direct consequence of the distribution of labour,
different phases of economic activities actually go on in diverse organizational
forms in any society. Different organizations (from firms to governmental agencies
and civil groups) normally have separate and diverse interests. An economic
necessity of holding inventories is therefore stems from that individual participants
consider their own interest when manage their part of the need fulfilment processes.
The diversity of interests may lead to disruptions in the economic processes which
must be bridged by holding inventories.
It is quite obvious from the reasoning above that it is unavoidable to hold
inventories in any society and any time. Economic and technological changes may
effect the actual circumstances (these days we experience especially important
changes as a consequence of increasing protectionism and of information tech-
nology), however the basic rules still apply. The popular “zero inventory” slogan
sounds nicely and can actually be achieved at some particular points in the econ-
omy, but this can only happen at a price paid at some other point(s). In a
company-to-company relationship, the stronger one can push inventory holding to
its business partner. However, the total cost of the two companies is very often
higher than the benefits achieved by stock avoidance, since it is a consequence of
some distortion introduced into the system by the excess power of the agent who
avoids inventory holding.
The above reasoning suggests that holding inventories is beneficial; it leads to
more economical use of social resources and facilitates the higher level and more
effective fulfilment of needs. This is true. However, there is another side of the
4 1 Introduction: The Nature and Structure of the Inventory Problem

picture, since it must be added that holding inventories of course goes together with
costs, in a double sense.
On one hand, the capital tied up in inventories is—at least temporally—with-
drawn from the circulation of capital, slowing down the return on investment. This
return is actually realized when a given inventory fulfilled its role and the products
are used up in the need fulfilment production–distribution processes. So, holding
inventories implies capital investment with return requirements. On the other hand,
keeping stock is an expensive activity in itself, both its physical handling and
management require substantial resources.
So, we can conclude that inventory holding is a necessary and complicated
economic activity which generates both costs and benefits. For an efficient real-
ization of this activity, agents of the economy must consider diverse material,
financial and managerial aspects and must weigh up positive and negative conse-
quences of their decisions on inventory holding.
The way how the distribution of labour and the balancing of benefits and costs
go on in any given society depends on a number of cultural, political and institu-
tional factors—which means that it is to a great extent nation-dependent. The
distribution of labour and all the related circumstances (including inventory hold-
ing), besides many local and occasional influencing factors, also have long-term
country-specific characteristics—these are in the focus of our book.
The country-specific characteristics mainly come from two different sources,
related to the two (physical and economic) motives of inventory holding. The first
set of characterizing factors is mainly a function of the actual technology (in a broad
sense) of fulfilling needs in various countries: the technical level and organizational
development of production and logistics. The other group of factors can be derived
from the social conditions of need fulfilment: from the macro- and microeconomic
characteristics of a given national economy. Of course, both sets of factors have
many components which are in a complex interaction with each other. The effect of
the individual factors in reality cannot be separated. For analytical purposes,
however, it may be meaningful and useful to deal with the two groups separately.
In this book, we concentrate on the second group of factors, and even within that
we deal first of all with the macroeconomic aspects. We would like to show how the
long-term macroeconomic characteristics of countries influence their long-term
inventory behaviour. This research focus is special, rather unusual in the literature
as we will see in the review to be provided later.

1.3 Inventories in the Economy: A Holistic View

Considering the economy as a whole, we find inventories everywhere: stocks of

goods are present in all areas of our life and can be classified in many ways.
We are to focus in this book on the national level of inventory holding. Doing so
we must keep in mind that national inventories are aggregates of lower organiza-
tional levels of inventories, which can be classified into the following groups:
1.3 Inventories in the Economy: A Holistic View 5

• Business inventories: these are kept at various kinds of business organizations as

a component of their value-creating processes.
• Household inventories: kept at social units of society (families) for the benefit of
members of the given household.
• Government inventories: held at various units of national governments in order
to enhance common benefit of society, such as preventing hunger, easing the
tension caused by disasters or serving security purposes.
• Civil sphere inventories: held by non-profit organizations for serving specific,
usually charitable purposes of those organizations, such as churches or
anti-poverty organizations.
The largest and—from an economic point of view—most important subject of
analysis is business inventories. National accounts statistics of inventories basically
aggregates business inventories, held by a variety of companies (often classified
into different sectors and industries of the economy—this classification is based on
the main areas of activity of the given companies). Therefore, in order to understand
national inventories, we have to pay attention to the company level as well, since
decisions made on this level shape aggregate inventories.
And we have to go even further down in disaggregation, since company-level
decisions are very rarely oriented on the total level of inventories kept by the
company, but they are related to the different items (product types) the company
keeps on stock. Demand for inventories is most often risen for particular item(s) of
goods which may serve purposes of the customer. So, item-level decisions are the
nucleus of any other inventory formation.

1.3.1 The Item-Level Inventory Problem

At the first glance, it may be strange that this “sub-micro” level is the most dis-
cussed type of inventory problems. However, when firms started to look for more
sophisticated management approaches at the beginning of the twentieth century,
they were relatively fast in discovering the profit potentials in inventories, and when
in the post-World War II era Operations Research actually started to deal with and
handle complex business issues, inventory optimization was among the favourites.
There is a good reason why both business and academia found the item-level
problem as a good starting point. From a managerial perspective, it is clear that
demand appears primarily at the item level. Demand for both industrial and con-
sumer goods is directed for something which is appropriate for solving a problem of
the customer—and in most of the cases this something is materialized as a concrete
item, or a connected set of complementary or substitutable items (which may be
handled jointly).
So, companies in principle are very much interested in learning at least the
optimal level of their most important goods. In practice, however, the actual use of
6 1 Introduction: The Nature and Structure of the Inventory Problem

even the simplest model became widespread only after computerization made the
necessary information processing possible.
For that time, there were already literally several hundred models in the litera-
ture. Inventory modelling became extensively popular in the 1950s, when even the
greatest economists (including several Nobel laureates, like Arrow, Modigliani and
Simon) published important works on inventories (Arrow et al. 1958; Holt et al.
1960, and for an overview, Girlich and Chikán 2001). Besides the obvious practical
relevance, there was and is another reason behind the popularity of inventory
modelling: the relatively transparent, straightforward structure of inventory control
attracts mathematical handling.
For the purposes of our book, calling attention to the item-level problem is
interesting not only for historical reasons. As we will see in the literature review,
even today many macroeconomic models use a basic single item “model” firm to
illustrate macroeconomic processes. This is all the more relevant, since one of the
basic classes of macromodels is built on the so-called (S, s) ordering mechanism,
which was found to be the most efficient ordering rule for a large class of item-level
problems many years earlier (Clark 1958; Blinder and Maccini 1991) under rather
general circumstances. This connection between the macro- and sub-microlevel has
not attracted sufficient attention in the literature, despite its obvious importance.

1.3.2 Inventories at the Firm Level: Inventory Management

As discussed in the introduction, firms are forced to keep inventories in order to be

able to operate under the circumstances of social distribution of labour. All com-
panies are specialized more or less, they play a given role in the distribution of
labour, aiming to meet parts of social needs. This role is of course
• changeable according to the firm’s strategy;
• not restricted to supplying one single item, i.e. the vast majority of companies
operate on several markets, serving different customers.
Their connections with each other and with customers determine the particu-
larities of their inventory behaviour. The necessity of inventory holding is explained
by three interrelated motives:
• Normal everyday operations require inventories to smooth intra- and inter-
company relations (this need stems from technological requirements, different
production lot sizes, transportation needs, etc.)
• Companies have to be prepared for handling unexpected events, to be able to
manoeuvre under unfavourable circumstances (such as in case of sudden supply
disruptions, extreme weather conditions, machine breakdowns)
• They have to be able to utilize unplanned positive business opportunities
(sudden surge of demand, price increase at the output side, decrease at the input
side, storing for later sale, etc.)
1.3 Inventories in the Economy: A Holistic View 7

As a result of the combination of all the above motives, companies have (or at
least should have) a more or less specifically identified inventory policy. This
policy is basically a result of two fundamental considerations:
• Realizing the advantages of inventory holding listed above;
• Achieve these advantages with the lowest possible level of inventories, saving
both capital tied up and current costs.
It should be added here that even though the above two considerations are
usually present in the thinking of business decision makers, there are rather few
(mostly large) companies which has an explicit inventory policy. Inventories (as
stocks) are usually formed as consequences of the main flows of company opera-
tions like production, sales, maintenance. However, if the two considerations are
not effective enough among the factors influencing “mainstream” decisions, the
inventory problem appears quickly in the form of exam inventories and/or shortages
—possibly both parallely as a result of structural discrepancies. Current-day
inventory policy approaches therefore are far more comprehensive than the ones in
the classic WWII times (Chikán 2009, 2011; Jaber 2009; Elsayed 2016).
Of course, firms’ inventory behaviour is dependent not only on their intentions
but also on factors of the economic and social environment. This establishes a close
connection between macro- and microeconomic aspects of inventory phenomena,
since, as it was shown, national inventories are basically the sum of firm inventories
—at least as they are handled in the inventory literature. (Which, as mentioned
before covers government and consumer inventories rather poorly.)
The most important factors influencing firm behaviour from outside are related
to the operations of the market and the government, as well as influenced by social
and cultural factors characteristic to the country (countries) where the firm operates.
To harmonize their inventory behaviour with the influencing factors and require-
ments set by the environment, companies continuously adjust their inventory policy
to meet actual technical and business needs (Chikán 2007).

1.3.3 National Inventories

It follows from the reasoning above that national inventories are the sum of
inventories at lower levels of aggregation: at companies, households, governmental
and civil agencies. A consequence of this is that there is no direct intention and even
less a strategy in any country on how national inventories should form. However,
there are a number of macrolevel phenomena through influencing of which national
inventory formation is—intentionally or not—shaped.
• Dynamism of the economy, especially the rate of growth. Expansion of eco-
nomic activity normally goes together with increased level and changing
structure of inventories;
8 1 Introduction: The Nature and Structure of the Inventory Problem

• Level of development. Higher level of development usually implies more

sophisticated demand conditions all over the economy, leading to higher
inventory holding to ensure good service. This effect may be counterbalanced by
more effective business operations;
• Sectoral structure of the economy. Some sectors are by virtue of their funda-
mental technological processes more inventory-intensive than others;
• Market structure. Institutional conditions in general and market relationships in
particular play decisive role in determining inventory structure and through that
the level of inventories;
• Government economic policy. Even though the effect of it is usually short term,
there are some decisions, for example in infrastructure and energy which have
long-term effects;
• Financial institutions and their operation are very important from the point of
view of flexibility of doing business of which inventory holding is a crucial
element.
• Openness of the economy. Strong engagement in international operations usu-
ally goes together with higher risk (e.g. for larger danger of disruptions or
because of currency exchange effects), and in the mitigation of these risks
inventories can play important role.
In reality of course, these effects appear in combination, strengthening or
weakening each other. Therefore, it is usually rather complicated to tell what
phenomena cause the actual formation of inventories in a particular country at a
particular time. Causal ambiguity is present even if we can identify some specific
influencing factors. In this book, we try to shed light on some of the causes and
effects in macroeconomic inventory phenomena, both through a joint analysis of
OECD countries and at the individual countries’ level.

1.4 Focuses of Macroeconomic Inventory Analysis: Level,

Structure and Fluctuation

Change in inventories represents a very important component of GDP, even though

its share of total GDP is relatively small. Inventories and their changes are crucial
indicators of the operation of the economy: their level, structure and changes reflect
some of the main economic processes. All three aspects are subject to intensive
research, and even though they are obviously interrelated, studying them raises
interesting separate questions as well.

1.4.1 Inventory Level

Inventories are stocks of goods and as such they are part of national wealth. From
this perspective, it may seem that higher inventories are desirable because they
1.4 Focuses of Macroeconomic Inventory Analysis … 9

mean larger national wealth. This is true, but this is only one side of the picture. As
it was discussed, keeping inventories ties up capital and generates day-to-day costs,
and this constrains the resources available for increasing the rate of growth. So just
as we have seen at the company level, national economies also have to balance the
costs and benefits of holding inventories. On one hand, other factors being equal,
higher inventories may indicate more uncertainties and disturbances in the econ-
omy, to which actors of the society react with holding higher inventories as safe-
guards against unwanted consequences. On the other hand, higher level of
development of an economy may mean more sophisticated market conditions,
under which higher inventories are means of better service to customers.
Since holding inventories means passive, inactive tying up of capital, which is—
at least temporarily—drawn out from the circulation of capital and therefore form
the immediate process of value creation, it is in the interest of the whole economy to
keep this unproductive investment as low as possible.
It is important to emphasize, however, that—as we have shown it in the previous
chapter—holding inventories is a necessity, so there is in principle an “optimal”
inventory level in any economy which is certainly higher than zero. This optimal
level in reality cannot be determined—in fact since most of the decisions
influencing inventories (mainly on production and distribution of goods) are made
before actual demand for the goods are known, inventory-related decisions can be
made “only” based on expectations on the future state of the economy and so these
decisions involve a high level of risk. Since keeping inventories always serves some
demand-related objectives, it is clear that these decisions usually are not pointing to
inventories directly but serve the purpose of smoothing flows leading to better
fulfilments of needs.
Therefore, it is very important that we know as much as possible about the
economic processes which influence inventory levels and about the transmission
mechanisms which connect economic decisions to inventory formation.

1.4.2 Inventory Structure

Macroeconomic inventory efficiency is closely connected to microlevel efficiency.

As we have seen, macroeconomic inventory formation is a consequence of many
microlevel decisions influencing inventories at the main inventory holders, most of
all companies. Aggregate national inventories are consequences of operational
decisions at the microlevel (usually business or household). From this, it clearly
stems that there are many structural issues in the economy which influence
macroeconomic inventory investment. Here are the two most important ones:
sectoral allocation of inventories is obviously related to one of the most important
characteristics of any economy. This is discussed in detail in Sect. 2. The pro-
portion of various sectors in producing GDP is related to many fundamental issues
in the economy, from its development level to the strategic directions. Inventory
intensity and dynamics of the various sectors are also very different, so analysing
10 1 Introduction: The Nature and Structure of the Inventory Problem

and judging inventory behaviour is impossible without a thorough analysis of

sectoral characteristics.
Inventory allocation is also a very important signal of the market relationships in
the economy. In case of excess supply, when usually sellers are competing for the
buyers, inventories are mostly at the output side of the companies (like in finished
goods or merchandises) in order to be able to adjust to changing demand fast. In the
opposite case, when demand is in excess and because of that there are frequent
shortages in the economy, companies will want to protect themselves against
process interruptions and hold inventories mostly on input side (like materials or
purchased parts). This feature may be of course different in various markets or
sectors, causing different inventory behaviour.

1.4.3 Inventory Fluctuations

Inventories are relatively flexible elements of the economy: using and replacing
them takes usually shorter time than most macroeconomic processes. That is why
inventories act as one of the leading indicators of the changes in the business cycles.
When demand in the economy is slowing down, inventories are accumulated, as
there is a decrease in the demand for goods (and services). In these periods, the
inventory investment/GDP ratio is relatively high. On the other hand, when the
economy is coming out of recession in order to serve increasing demand, formerly
accumulated inventories are put on the market causing a much lower, sometimes
even negative inventory investment/GDP ratio. Thus, inventory investment is an
important indicator used in analysing business cycles and making decisions on
production and sales.
While both the overall inventory level and the structure of inventories are rel-
atively stable characteristics of the various economies, the change of inventories is a
short-term factor. There can be even wild fluctuations in any economy from one
period to the other, depending on both external and internal shocks. However, our
perception is that there are some identifiable attributes of the different economies
which influence the properties of fluctuations on the long run. It should be added
that quite naturally long-run characteristics of inventory investments determine the
general level of inventories in any country, studying the former will lead us to
understand the latter.

1.5 Macroeconomic Inventory Trends

The above analysis leads to the consequence that understanding inventory trends at
the national level requires consideration of many circumstances. Besides the results
one can get by a thorough analysis of developments in individual countries, it is
kind of natural to ask:
1.5 Macroeconomic Inventory Trends 11

What are the common and distinguishing features of inventory investment in the
different countries? Can we identify general tendencies of the aggregates and the
influencing factors?
These questions were the starting point of our research.
Based on the literature and our own previous studies, we had of course a number
of other research issues in mind. For example:
• Kornai (1971, 1980) has shown that certain macroeconomic indicators have a
relatively stable “norm” for the various economies and actual data on the long
run fluctuate around this norm. Can we identify such norms of inventory
investments for the different countries and what are the reasons behind the
variation of these norms by country? What kind of dynamism and/or structure in
an economy does lead to differences in these norms? Which countries form a
group of norms and why?
• Just a glance at the time series of inventory investments in various sets of
countries (looking at data from different international sources) shows that there
are similarities in the fluctuation in different countries. First of all, it seems that
there are relatively long periods when we can identify a slight downward trend
in the volume of inventory investment in various (sometimes most) countries,
then the trend changes. Also, in some periods there is a decrease in the
country-wise fluctuation of inventory investment (i.e. countries tend to behave
similarly), while in other periods their behaviour becomes different. What causes
may be behind this phenomenon?
• Previous analysis of data from practically all countries in the world has shown a
connection between the level of development and inventory investment, i.e.
there is a tendency that more developed countries invest relatively less in
inventories. In the past decade, there are question marks behind this statement—
what is the actual reason for that?
• Various macroeconomic and structural data are used in the above analyses. Can
we identify general rules of connections between data of macroeconomic fea-
tures and inventory investments over all or at least several countries?
• As it is well known, a set of Central and Eastern European economies went
through a transformation from planned to market economies some quarter of a
century ago. Data show a fundamental change in the level of inventory
investment in these countries. Can this change support the hypothesis of
inventory norms and, if the answer is yes, what are the systemic factors behind
it?
These and similar questions were in front of us when we started systematic
research for this book. In the research process, it has revealed that many of the
problems we started to study were far more complicated than we originally
assumed. However, we found interesting answers to many of the questions above.
At the end of the book, we will summarize how far we managed to go into this
rather rocky new field of research.
12 1 Introduction: The Nature and Structure of the Inventory Problem

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Production Economics, 71(1–3), 351–363.
Holt, C. C., Modigliani, F., Muth, J. F., & Simon, H. A. (1960). Planning production, inventories,
and work force. Englewood Cliffs, NJ: Prentice-Hall Inc.
Jaber, M. Y. (Ed.). (2009). Inventory management: non-classical views. CRC Press.
Kornai, J. (1971). Anti-equilibrium. Amsterdam: North-Holland.
Kornai, J. (1980). The economics of shortage. Amsterdam: North-Holland.
Smith, A. (1776). An Inquiry into the nature and causes of the wealth of nations. London: Printed
for W. Strahan., & T. Cadell.
Chapter 2
Review of the Literature

2.1 Introduction

The inventory behaviour at different levels of the economy is analysed by various

research disciplines. Operations research, operations management, marketing pro-
vide insight into item-level and firm-level problems. Moreover, firm-, sector- and
country-level inventory developments as well as international comparisons are
analysed by the economics, international economics, international business and
finance/accounting literature. In this literature review considering the purpose of the
book, we only deal with the economics-related literature and do not consider
business and operations approaches.
Within economics, micro-, sectoral- and macrolevel studies are all treated mostly
separately—though there are papers addressing research questions originating from
various levels. We present the controversy existing between economic and man-
agerial approaches to inventories. Firm-level inventory literature is covered only
from an economics point of view, touching on inventory management only when it
is needed for understanding the economic phenomena. Connections of inventories
and other macroeconomic features (like finances or global processes) are discussed
in general and then in cases of particular countries.
The most important connection in analysing different levels of inventory holding
is the micro–macrolink or rather controversy. As Blinder and Maccini (1991a) put it
in a seminal paper, there was a tension developing between macroeconomic and
microeconomic views of inventories: in macroeconomics, inventories were seen as
a destabilizing factor, increasing the volatility of GDP/GNP, while in microeco-
nomics, inventories were perceived as a stabilizing factor, through which the
volatility of sales was not translated directly into the volatility of production.
According to Kahn (2008b, p. 1), “… the pro-cyclicality of inventory investment
appears inconsistent with standard microeconomic models of inventory behaviour,
particularly those that stress ‘buffer stock’ or ‘production-smoothing’ motives”.
Empirical studies showed these contradictions: the major role of inventories in

© Springer-Verlag London Ltd., part of Springer Nature 2018 13

A. Chikán et al., Inventories in National Economies,
https://doi.org/10.1007/978-1-4471-7371-7_2
14 2 Review of the Literature

business cycles and especially at turning points in it, while at the firm level,
inventories are held mainly for “smoothing” production, the operation of the firm or
sales. This tension is still present (analysis of the reason for that is beyond the scope
of this book), and there is still little “trespassing” between the macro- and
microapproaches. (Among the few exceptions, Fisher and Hornstein (2000) should
be mentioned.) That is one reason why they are treated separately in this literature
review as well. It must be added as another limitation that we only deal with the
economics-related literature and do not consider business and operations approa-
ches. Inventory research has its own flourishing and “silent” periods. The period
between the two world wars and the immediate post-war era witnessed a surge in
inventory research, while in the sixties and in the first half of the seventies, little
attention was devoted to the topic. The 1973 oil crisis, the recessions of the eighties
and nineties and the surge in the interest for business cycles and the related role of
inventories resulted in a renewed research effort. Global economic processes, like
the “dotcom bubble”, the Great Moderation or the 2008/2009 financial crisis also
stimulate inventory papers. Overall, papers on the economics of inventories appear
to come more and more frequently. Our literature review is based on 240 papers,
which has the following time distribution: 43 items before 1990, 66 between 1991
and 2000, 115 in the 2001–2010 period, 16 after 2010. Moreover, there are certain
research areas, which have their own “flourishing periods”, when more attention is
devoted to them, partly due to real economy developments, partly due to devel-
opments either in methodology or in theory or improvements in data quality and
availability. That is why certain research questions, which came to the forefront
more recently, such as the role of better inventory management in the Great
Moderation or inventory developments during the global financial crisis at the end
of the first decade of the 2000s, are analysed in a separate section of this literature
review.
The inventory-related literature will be presented with keeping an eye on our
main topic: differences in macrolevel inventory behaviour of countries. This topic is
analysed through various approaches in the literature, and the two main groups
consist of analyses based on disaggregated (usually firm level) data on one hand,
and on aggregated, macro- or sectoral-level data on the other hand.

2.2 Analysis of Inventories at the Firm Level

As discussed in Sect. 1, national inventories, which are in the focus of our interest,
are actually aggregates of inventories held at the various actors of the economy. The
most important component of this sum is business inventory, held mostly by
companies. Inventories are important component of business operations; they play
crucial role at companies: a significant share of the assets of a company is usually
“kept” as inventories of raw materials, components in work-in-progress and usually
to a lesser extent, finished goods. Understandably, in wholesale and retail trade,
firms also operate with high level of inventories of mainly finished goods. Thus, not
2.2 Analysis of Inventories at the Firm Level 15

only parts of the assets are “tied down” in inventories but keeping and maintaining
them is also increasing the costs companies have to bear. It is no surprise that both
in manufacturing and trade there was a ubiquitous search for reducing these costs
through reducing inventory levels and increasing efficiency of keeping them.
First, Modigliani (1957) and Mack (1957) asked the basic question of why firms
keep inventories, i.e. what can be the economic reason for the existence of
inventories. Modigliani (1957, p. 498) stated that “…very nearly all the decisions
that finally result in the holding of stocks are really based on considerations other
than the maintenance of a given relation between stocks and sales… However…
expectations—it is probably still useful, for the purpose of aggregative analysis, to
proceed as though firms tried in fact to maintain a stable relation (though not
necessarily a constant ratio) between stocks and sales”. According to him, there are
four factors, which justify and make profitable the holding of inventories: pro-
curement costs, smoothing of production, expected changes in prices of the goods
in question and finally uncertainty and lead time.

2.2.1 Models of Inventory Behaviour of the Firms

in General: Theories and Empirics

There are various theoretical models of the inventory behaviour of firms in the
literature. We go through three of them in detail: the linear-quadratic approach,
the stockout-avoidance model and the (S, s) model. Holt et al. (1960) introduced the
linear-quadratic approach of optimization of inventories and thus established
the analytical framework for analysing the inventory behaviour of companies. They
showed that optimizing firms facing convex production costs and uncertain demand
are motivated to smooth production and use inventories to buffer demand shocks.
Thus, in the linear-quadratic cost minimization or production-smoothing model,
the explanation for holding finished goods’ inventories is that through using them,
in an environment of uncertain demand, fluctuations in sales can be absorbed and
production may remain unchanged (Blinder and Fischer 1981; Blanchard 1983;
West 1987; Blinder and Maccini 1991a; Ramey 1991). This model assumes the
convexity of production costs and that firm managers decide about the level of both
production and inventories. In the case of unanticipated increase in sales, the
increased demand can only be met with varying inventories, which are readily
available. Inventories are thus used to buffer demand shocks, so production should
be only partially adjusted to changes in sales. Thus, in that model, the variance
(volatility) of sales is expected to be larger than that of production, and sales are
assumed to be negatively correlated with inventories (Milne 1994).
While theoretically acceptable (see e.g. Wen 2002), the various authors failed to
find empirical evidence for the model (Blinder 1986; Miron and Zeldes 1988;
Blinder and Holtz-Eakin 1984; Blinder and Maccini 1991a), or example reporting
higher volatility of production than of sales (Blinder 1986), which was due partly to
16 2 Review of the Literature

measurement errors and data problems (see e.g. Krane and Braun 1991). Moreover,
problems in finding empirical evidence for the model were identified as aggregation
bias (e.g. for aggregate and seasonally adjusted data: Ghali 1987 or Lai 1991), the
heterogeneity of inventory components (e.g. Nerlove et al. 1993), changes in the
cost function (West 1990), non-convex costs (Ramey 1991), not allowing persistent
cost shocks (Blinder 1986) or stockout admission (Kahn 1992). While the majority
of papers achieved exactly the opposite results compared to the predictions of the
model, there are a few studies finding support for production smoothing in certain
industries, e.g. Krane and Braun (1991), Beason (1993), Dimelis and Ghali (1994)
or Allen (1999b) or in certain countries (e.g. Knetsch (2004b) for Germany), or
both: for example, Tsoukalas (2009) found evidence for production smoothing for
the UK manufacturing sector. As he puts it: “Output and to a lesser extent input
inventories buffer production from sales surprises whereas both types of stocks
buffer production from cost shocks” (p. 18).
Partly because empirical evidence was inconclusive for the production-
smoothing model, new theoretical models were developed for explaining
firm-level inventory behaviour. The stockout-avoidance model, which is close to
the production-smoothing model in its theoretical basis, implies the existence of a
target level of inventories, which the managers of the firm want to maintain in order
to be able to react to fluctuations in demand. This target inventory level is con-
sidered to be optimal for the firm mainly from a financial (cost) point of view, and
the managers try to be as close to it as possible. The empirical findings questioning
the validity of the production-smoothing model are acceptable by the logic of the
stockout-avoidance model, as here production may be more volatile compared to
sales and there may be a positive correlation between sales and inventories (Kahn
1992). The flexible accelerator principle assumes that entrepreneurs succeed in
maintaining their inventories at an equilibrium level, which is linearly related to
sales (Lovell 1964); inventory developments are shaped by two factors: closing the
gap between the target and real level of inventories on one hand and between
expected and real sales on the other hand. Numerous papers found empirical
support for the model (more recently, e.g. Iturriaga (2000) based on the data of
Spanish firms or Clausen and Hoffmaister (2010) for numerous European coun-
tries), while there are others rejecting it. For example, Lovell (1993) looked at the
aggregation of firm-level data to industry data and its impact on the estimated speed
of inventory adjustment. He concluded that aggregation bias may be the cause of
the lack of empirical evidence based on calculation using US data on the flexible
accelerator model, as aggregation problems may be responsible to the “too slow”
estimates of the speed of inventory adjustment by firms. Cristiano and Eichenbaum
(1987) had a look at the effect of temporal aggregation on the estimated speed of
adjustment in the stock-adjustment model. They showed that aggregation over time
results in an underestimation of the speed of adjustment. Ghali (1996) showed that
using real firm data results in better support for the model. Moreover, the level of
temporal aggregation (i.e. using quarterly instead of monthly data) may account for
the problems with empirical evidence for the stock-adjustment models. Thus, he
Another random document with
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tributaries, where they remain until driven off by the cold, and return
about the beginning of April, at which period the Purple Martin also
makes its appearance. In our Middle Districts, they arrive a fortnight
later. On the Island of Jestico, in the Gulf of St Lawrence, about
twenty pairs had nests and eggs on the 11th of June; and the air was
filled with the pleasing sound of their voices while we remained
there. The nests were placed among the tall slender grass that
covered the southern part of the island. They were more bulky and
more neatly constructed than any that I have examined southward of
the Gulf of St Lawrence; and yet they were not to be compared with
those found in Labrador, where, in every instance they were
concealed under ledges of rocks extending for several feet over
them, so that I probably should not have observed them, had not the
birds flown off as I was passing. These nests were made of dry
moss, raised to the height of from six to nine inches, and well
finished within with slender grasses and feathers of the Eider Duck.
As usual however, the eggs were always four, when the bird was
sitting. They measure an inch and a quarter in length, by an inch at
their thickest part, so that they have a shortish and bulky
appearance, though they run almost to a point. They are smooth,
and handsomely marked with blotches of deep brown and others of
a lighter tint, on a greyish-yellow ground, the spots being larger and
closer towards the rounded end. Both sexes incubate, and remain
with their brood until the time of their departure.
My learned friend Thomas Nuttall has described the manners of
this species as observed in the neighbourhood of Boston, with so
much truth and accuracy, that I cannot do better than present you
with his account of it, the more especially, that in so doing, I have an
opportunity of expressing the high opinion I entertain of his talents
and varied accomplishments. “The Peet Weet is one of the most
familiar and common of all the New England marsh birds, arriving
along our river shores, and low meadows, about the beginning of
May, from their mild or tropical winter quarters in Mexico. As soon as
it arrives on the coast, small roving flocks are seen, at various times
of the day, coursing rapidly along the borders of our tide-water
streams, flying swiftly and rather low, in circular sweeps along the
meanders of the rock or river, and occasionally crossing from side to
side, in rather a sportive and cheerful mien, than as the needy
foragers they appear at the close of the autumn. While flying out in
these wide circuits, agitated by superior feelings to those of hunger
and necessity, we hear the shores re-echo the shrill and rapid
whistle of ’weet, ’weet, ’weet, ’weet, and usually closing the note with
something like a warble, as they approach their companions on the
strand. The cry then varies to ’peet, ’weet, ’weet, ’weet, beginning
high and gradually declining into a somewhat plaintive tone. As the
season advances, our little lively marine wanderers often trace the
streams some distance into the interior, resting usually in fresh
meadows among the grass, sometimes even near the house, and I
have seen their eggs laid in a strawberry bed; and the young and
old, pleased with their allowed protection, familiarly fed, and probed
the margin of the adjoining duck-pond, for their usual fare of worms
and insects. They have the very frequent habit of balancing or
wagging the tail, in which even the young join as soon as they are
fledged. From the middle to the close of May, the pairs, seceding
from their companions, seek out a place for their nest, which is
always in a dry open field of grass or grain, sometimes in the
seclusion and shade of a field of maize, but most commonly in a dry
pasture, contiguous to the sea shore; and in some of the solitary and
small sea islands, several pairs sometimes nestle near to each other,
in the immediate vicinity of the noisy nurseries of the quailing Terns.
On being flushed from her eggs, the female goes off without uttering
any complaint; but when surprised with her young, she practises all
the arts of dissimulation common to many other birds, fluttering in
the path, as if badly wounded, and generally proceeds in this way so
far as to deceive a dog, and cause it to overlook the brood, for
whose protection these instinctive arts are practised; nor are the
young without their artful instinct, for on hearing the reiterated cries
of their parents, they scatter about, and squatting still in the withered
grass, almost exactly their colour, it is with careful search very
difficult to discover them, so that in nine times out of ten, they would
be overlooked, and only be endangered by the tread, which they
would endure sooner than betray their cautious retreat.
“At a later period the shores and marshes resound with the quick,
clear, and oft-repeated note of peet weet, peet weet, followed up by
a plaintive call on the young, of peet, peet, peet? peet? If this is not
answered by the scattered brood, a reiterated ’weet, ’weet, ’weet,
’wait, ’wait, is heard, the voice dropping on the final syllables. The
whole marsh and the shores at times echo to this loud, lively, and
solicitous call of the affectionate parents for their brood. The cry, of
course, is most frequent toward evening, when the little family,
separated by the necessity of scattering themselves over the ground
in quest of food, are again desirous of reassembling to roost. The
young, as soon as hatched, run about the grass, and utter from the
first a weak plaintive peep, at length more frequent and audible; and
an imitation of the whistle of peet weet, is almost sure to meet with
an answer from the sympathizing broods, which now throng our
marshes. When the note appears to be answered, the parents hurry,
and repeat their call with great quickness. Young and old, previous to
their departure, frequent the sea shores, like most of the species, but
never associate with other kinds, nor become gregarious, living
always in families till the time of their departure, which usually occurs
about the middle of October.”
My esteemed friend Thomas Macculloch of Pictou, Nova Scotia,
having transmitted to me a curious account of the attachment of one
of these birds to her eggs, I here insert it with pleasure. “Being on an
excursion to the Hardwood Heights, which rise to the west of Pictou,
my attention was attracted by the warble of a little bird, which
appeared to me entirely new, and which proceeded from a small
thicket a short way off. Whilst crossing an intervening meadow, I
accidentally raised a Spotted Sandpiper from its nest, and having
marked the spot I hastened forwards; but the shyness of the object
of my pursuit rendered all my efforts unavailing, and returning to the
nest which I had just left, I expected to find it still unoccupied; but the
Sandpiper had again resumed her place, and left it with great
reluctance, on my near approach. The nest contained four eggs,
which I determined to remove on my return at night, and for the
purpose of preventing the bird sitting again upon them, I placed a
number of stones in a slanting position over the nest, and so close
that it was impossible for the bird to get into it. On my return in the
evening, however, I observed the little creature rise from beside the
stones apparently in greater trepidation than ever, and more anxious
to draw me away by the exhibition of all those little arts which they
practise for this purpose. On examining the spot I was very much
surprised to find that the poor thing had not only hollowed out a new
nest, but had actually succeeded in abstracting two eggs from the
other nest. How the bird had contrived to remove the eggs I cannot
conceive, as the stones remained unaltered. This attachment to its
nest and eggs appeared to me more singular as the bird had just
commenced incubation, the eggs exhibiting very little appearance of
the young.”
In addition to the observations of Thomas Nuttall, I must inform
you that this species is often observed to alight on the branches of
trees hanging over water-courses, on which they walk deliberately,
and with their usual delicate elegance of gait, and balancing of both
body and tail. They are also wont to alight more frequently on the
rails and stakes of fences, or on walls. I have seen them on the tops
of hay-stacks, where they seemed to be engaged in pursuing
insects. On several occasions I have found their nests in orchards of
both peach and apple trees, at a considerable distance from water,
the use of which, indeed, they do not appear to require much during
the progress of incubation, or the first weeks after hatching their
young, when I have seen them rambling in search of food over large
open fields of sweet potatoes and other vegetables, in the
neighbourhood of some of our cities.
While these birds are flying, in the love season, the points of their
wings are considerably bent down, and they propel themselves by
strong and decided beats, supporting themselves afterwards by slow
tremulous motions of their pinions, to the distance of some yards,
when they repeat the strong beats, and thus continue until they
realight, uttering all the while their well-known notes, so accurately
described by my friend Nuttall.
In the autumnal months, along the shores of La Belle Riviere, I have
often with much delight watched the movements of these birds,
when I have been surprised to see the pertinacity with which, after
the first frosts, they would pursue their migration down the stream,
for on attempting to make them fly the other way, they would rise,
sometimes to the height of twenty yards, and flying over head or
along the river, proceed downwards, although at any other time they
would exhibit no such propensity. They run along the shores, and
through shallow water, with great nimbleness; and while courting, the
male struts before the female, with depressed wings, spreading out
his tail and trailing it along the ground, in the manner of the Migratory
and Rufous Thrushes.
The young become very fat in autumn, and afford delicious eating,
for as they feed much on worms, aquatic insects, and small
mollusca, their flesh seldom has a fishy taste. The male and female
are alike, and almost equal in size. The young differ from the old until
the approach of winter, when, with the exception of their being rather
smaller, no difference can be perceived.
This species occurs also in Europe, and a few individuals have been
shot in England.

Totanus macularius, Temm. Man. d’Ornith. part ii. p. 656.—Ch. Bonaparte,

Synopsis of Birds of United States, p. 325.
Spotted Sandpiper, Tringa macularia, Wils. Amer. Ornith. pl. 59. fig. 1.
Spotted Tatler or Peet Weet, Nuttall, Manual, vol. ii. p. 162.

Adult Male. Plate CCCX. Fig. 1.

Bill a little longer than the head, very slender, subcylindrical, straight,
flexible, compressed, the point rather obtuse. Upper mandible with
the dorsal line straight, the ridge convex, broader at the base, slightly
depressed towards the end, the sides sloping, towards the end
convex, the edges sharp, the tip slightly deflected. Nasal groove
extending over three-fourths of the length of the bill; nostrils basal,
linear, pervious. Lower mandible with the angle very long and
extremely narrow, the dorsal line straight, the sides grooved at the
base, convex towards the end.
Head small, oblong. Eyes rather large. Neck of moderate length.
Body rather slender. Feet rather long and slender; tibia bare nearly
half its length, scutellate before and behind; tarsus also scutellate
before and behind; hind toe very small and elevated; fore toes rather
long, very slender, connected by basal webs, of which the outer is
much larger; second toe considerably shorter than fourth; all flat
beneath, and marginate. Claws small, slightly arched, much
compressed, rather sharp, that of the middle toe much larger, with
the inner edge considerably dilated.
Plumage very soft, blended, on the fore part of the head very short.
Wings long, narrow, pointed; primaries rather narrow and tapering,
first longest, the rest rapidly graduated; secondaries short, broad,
incurved, obliquely rounded, the inner elongated and tapering. Tail of
moderate length, much rounded, of twelve rounded feathers.
Bill greenish-olive above, yellow beneath, the point of both
mandibles black. Eye hazel. Feet pale yellowish flesh-colour, claws
black. All the upper parts shining deep brownish-olive, the head
longitudinally streaked, the back transversely barred, with black. A
line from the bill to the eye and beyond it white, another beneath it
dusky. All the lower parts white, marked with numerous brownish-
black spots, smaller on the throat, largest and roundish on the breast
and sides. Axillary feathers pure white, lower wing-coverts white
mottled with dusky. Quills brownish-black, glossed with green, the
elongated inner secondaries like the back; the primaries slightly
tipped with white, the secondaries, excepting the inner, more
distinctly so, the white forming on them a conspicuous band. Four
middle tail-feathers like the back, with a band of black at the end, the
tip white; the next pair on each side similar, with the white tip larger;
the next barred with dusky on the outer web; the lateral feather with
the outer web white similarly barred.
Length to end of tail 8 inches, to end of wings 7 1/2, to end of claws
8 1/2; extent of wings 13 3/4; wing from flexure 4 7/8; tail 2; bill along
the ridge 1; tarsus 10 1/2/12; hind toe and claw 4 1/4/12; middle toe and
claw 1 1/12.

Female. Plate CCCX. Fig. 2.

There is hardly any difference between the sexes.
The young in winter have the bill black at the end, dusky olive above,
yellow beneath; the feet yellowish flesh-colour. The lower parts are
brownish-white, without spots; the upper of the same brownish-olive
as in the adult, but the head and hind neck destitute of streaks, and
the rest with narrower and more numerous dusky bars.
The tongue is 10 twelfths long, slender, tapering to a point, grooved
above, sagittate and papillate at the base. The roof of the mouth with
a single row of papillæ, posteriorly divided into two series.
Œsophagus 3 inches and 8 twelfths long, its diameter 2 twelfths, and
nearly uniform. Proventriculus 1/2 inch long, 3 1/2 twelfths in diameter.
Stomach elliptical, 8 1/2 twelfths long, 6 1/2 twelfths in breadth; its
lateral muscles strong, the tendinous spaces oblong; the cuticular
lining with large longitudinal rugæ, and of a deep red colour. The
contents of the stomach in this individual were remains of marine
insects, and quartz sand. Intestine 10 inches long, its diameter
varying from 1 1/2 twelfth to 1 twelfth; it enlarges near the rectum to 2
twelfths. Rectum 1 inch and 1 twelfth; cœca 1 inch and 1 twelfth,
their diameter 3/4 of a twelfth.

The trachea is 2 inches and 8 twelfths long, its diameter from 2

twelfths to 1 twelfth; its rings 105, feeble and unossified. The lateral
muscles extremely feeble; sterno-tracheals moderate; a single pair
of inferior laryngeal muscles.
 AMERICAN WHITE PELICAN.

Pelecanus Americanus.
PLATE CCCXI. Adult Male.

I feel great pleasure, good Reader, in assuring you, that our White
Pelican, which has hitherto been considered the same as that found
in Europe, is quite different. In consequence of this discovery, I have
honoured it with the name of my beloved country, over the mighty
streams of which, may this splendid bird wander free and
unmolested to the most distant times, as it has already done from
the misty ages of unknown antiquity.
In Dr Richardson’s Introduction to the second volume of the Fauna
Boreali-Americana, we are informed, that the Pelecanus Onocrotalus
(which is the bird now named P. Americanus) flies in dense flocks all
the summer in the fur countries. At page 472, the same intrepid
traveller says, that “Pelicans are numerous in the interior of the fur
countries up to the sixty-first parallel; but they seldom come within
two hundred miles of Hudson’s Bay. They deposit their eggs usually
on rocky islands, on the brink of cascades, where they can scarcely
be approached; but they are otherwise by no means shy birds.” My
learned friend also speaks of the “long thin bony process seen on
the upper mandible of the bill of this species;” and although neither
he nor Mr Swainson pointed out the actual differences otherwise
existing between this and the European species, he states that no
such appearance has been described as occurring on the bills of the
White Pelicans of the old Continent.
When, somewhat more than thirty years ago, I first removed to
Kentucky, Pelicans of this species were frequently seen by me on
the sand-bars of the Ohio, and on the rock-bound waters of the
rapids of that majestic river, situated, as you well know, between
Louisville and Shippingport. Nay when, a few years afterwards, I
established myself at Henderson, the White Pelicans were so
abundant that I often killed several at a shot, on a well known sand-
bar, which protects Canoe Creek Island. During those delightful days
of my early manhood, how often have I watched them with delight!
Methinks indeed, Reader, those days have returned to me, as if to
enable me the better once more to read the scattered notes
contained in my often-searched journals.
Ranged along the margins of the sand-bar, in broken array, stand a
hundred heavy-bodied Pelicans. Gorgeous tints, all autumnal, enrich
the foliage of every tree around, the reflection of which, like
fragments of the rainbow, seems to fill the very depths of the placid
and almost sleeping waters of the Ohio. The subdued and ruddy
beams of the orb of day assure me that the Indian summer has
commenced, that happy season of unrivalled loveliness and serenity,
symbolic of autumnal life, which to every enthusiastic lover of nature
must be the purest and calmest period of his career. Pluming
themselves, the gorged Pelicans patiently wait the return of hunger.
Should one chance to gape, all, as if by sympathy, in succession
open their long and broad mandibles, yawning lazily and ludicrously.
Now, the whole length of their largest quills is passed through the
bill, until at length their apparel is as beautifully trimmed as if the
party were to figure at a route. But mark, the red beams of the
setting sun tinge the tall tops of the forest trees; the birds experience
the cravings of hunger, and to satisfy them they must now labour.
Clumsily do they rise on their columnar legs, and heavily waddle to
the water. But now, how changed do they seem! Lightly do they float,
as they marshal themselves, and extend their line, and now their
broad paddle-like feet propel them onwards. In yonder nook, the
small fry are dancing in the quiet water, perhaps in their own manner
bidding farewell to the orb of day, perhaps seeking something for
their supper. Thousands there are, all gay, and the very manner of
their mirth, causing the waters to sparkle, invites their foes to
advance toward the shoal. And now the Pelicans, aware of the
faculties of their scaly prey, at once spread out their broad wings,
press closely forward with powerful strokes of their feet, drive the
little fishes toward the shallow shore, and then, with their enormous
pouches spread like so many bag-nets, scoop them out and devour
them in thousands.
How strange it is, Reader, that birds of this species should be found
breeding in the Fur Countries, at about the same period when they
are to be found on the waters of the inland bays of the Mexican Gulf!
On the 2d of April 1837, I met with these birds in abundance at the
south-west entrance or mouth of the Mississippi, and afterwards saw
them in the course of the same season, in almost every inlet, bay, or
river, as I advanced toward Texas, where I found some of them in the
Bay of Galveston, on the 1st of May. Nay, while on the Island of
Grande Terre, I was assured by Mr Andry, a sugar-planter, who has
resided there for some years, that he had observed White Pelicans
along the shores every month of the year. Can it be, that in this
species of bird, as in many others, barren individuals should remain
in sections of countries altogether forsaken by those which are
reproductive? The latter, we know, travel to the Rocky Mountains
and the Fur Countries of the north, and there breed. Or do some of
these birds, as well as of certain species of our ducks, remain and
reproduce in those southern localities, induced to do so by some
organic or instinctive peculiarity? Ah, Reader, how little do we yet
know of the wonderful combinations of Nature’s arrangements, to
render every individual of her creation comfortable and happy under
all the circumstances in which they may be placed!
My friend John Bachman, in a note to me, says that “this bird is now
more rare on our coast than it was thirty years ago; for I have heard
it stated that it formerly bred on the sand banks of our Bird Islands. I
saw a flock on the Bird Banks off Bull’s Island, on the 1st day of July
1814, when I procured two full-plumaged old birds, and was under
the impression that they had laid eggs on one of those banks, but
the latter had the day previous to my visit been overflowed by a
spring tide, accompanied with heavy wind.”
A single pair of our White Pelicans were procured not far from
Philadelphia, on the Delaware or Schuylkill, ten or twelve years ago.
These were the only birds of this kind that, I believe, were ever
observed in our Middle Districts, where even the Brown Pelican,
Pelecanus fuscus, is never seen. Nor have I heard that an individual
of either species has ever been met with on any part of the shores of
our Eastern States. From these facts, it may be concluded that the
White Pelicans reach the Fur Countries of Hudson’s Bay by inland
journeys, and mostly by passing along our great western rivers in the
spring months, as they are also wont to do, though with less rapid
movements, in autumn.
Reader, I have thought a thousand times perhaps that the present
state of migration of many of our birds, is in a manner artificial, and
that a portion of the myriads of Ducks, Geese, and other kinds,
which leave our Southern Districts every spring for higher latitudes,
were formerly in the habit of remaining and breeding in every section
of the country that was found to be favourable for that purpose. It
seems to me that it is now on account of the difficulties they meet
with, from the constantly increasing numbers of our hostile species,
that these creatures are urged to proceed towards wild and
uninhabited parts of the world, where they find that security from
molestation necessary to enable them to rear their innocent progeny,
but which is now denied them in countries once their own.
The White American Pelican never descends from on wing upon its
prey, as is the habit of the Brown Pelican; and, although on many
occasions it fishes in the manner above described, it varies its mode
according to circumstances, such as a feeling of security, or the
accidental meeting with shoals of fishes in such shallows as the
birds can well compass. They never dive for their food, but only
thrust their head into the waters as far as their neck can reach, and
withdraw it as soon as they have caught something, or have missed
it, for their head is seldom out of sight more than half a minute at a
time. When they are upon rivers, they usually feed along the margin
of the water, though, I believe, mostly in swimming depth, when they
proceed with greater celerity than when on the sand. While thus
swimming, you see their necks extended, with their upper mandible
only above the water, the lower being laterally extended, and ready
to receive whatever fish or other food may chance to come into the
net-like apparatus attached to it.
As this species is often seen along the sea shores searching for
food, as well as on fresh water, I will give you a description of its
manners there. While on the Island of Barataria in April 1837, I one
afternoon observed a number of White Pelicans in company with a
flock of the Brown species, all at work, searching for food, the Brown
in the manner already described, the White in the following. They all
swam against the wind and current, with their wings partially
extended, and the neck stretched out, the upper mandible alone
appearing above the surface, while the lower must have been used
as a scoop-net, as I saw it raised from time to time, and brought to
meet the upper, when the whole bill immediately fell to a
perpendicular position, the water was allowed to run out, and the bill
being again raised upwards, the fish was swallowed. After thus
swimming for about an hundred yards in an extended line, and
parallel to each other, they would rise on wing, wheel about, and
realight at the place where their fishing had commenced, when they
would repeat the same actions. They kept farther from the shore
than the Brown Pelicans, and in deeper water, though at times one
of the latter would dive after fish close to some of them, without their
showing the least degree of enmity towards each other. I continued
watching them more than an hour, concealed among a large quantity
of drifted logs, until their fishing was finished, when they all, White
and Brown together, flew off to the lee of another island, no doubt to
spend the night there, for these birds are altogether diurnal. When
gorged, they retire to the shores, to small islands in bays or rivers, or
sit on logs floating in shallow water, at a good distance from the
beach; in all which situations they are prone to lie down, or stand
closely together.
Being anxious, when on my last expedition, to procure several
specimens of these birds for the purpose of presenting you with an
account of their anatomical structure, I requested all on board our
vessel to shoot them on all occasions; but no birds having been
procured, I was obliged to set out with a “select party” for the
purpose. Having heard some of the sailors say that large flocks of
White Pelicans had been seen on the inner islets of Barataria Bay,
within the island called Grande Terre, we had a boat manned, and
my friend Edward Harris, my son, and myself, went off in search of
them. After a while we saw large flocks of these birds on some
grounded logs, but found that it was no easy matter to get near
them, on account of the shallowness of the bay, the water being
scarcely two feet in depth for upwards of half a mile about us.
Quietly, and with all possible care, we neared a flock; and strange it
was for me to be once more within shooting distance of White
Pelicans. It would no doubt be a very interesting sight to you, were
you to mark the gravity and sedateness of some hundreds of these
Pelicans, closely huddled together on a heap of stranded logs, or a
small bank of racoon oysters. They were lying on their breasts, but
as we neared them they all arose deliberately to their full height.
Some, gently sliding from the logs, swam off towards the nearest
flock, as unapprehensive of danger as if they had been a mile
distant. But now their bright eyes were distinctly visible to us, our
guns, charged with buckshot, were in readiness, and my son was
lying in the bow of the boat waiting for the signal. “Fire!”—The report
is instantly heard, the affrighted birds spread their wings and hurry
away, leaving behind three of their companions floating on the water.
Another shot from a different gun brought down a fourth from on
wing; and as a few were scampering off wounded, we gave chase,
and soon placed all our prizes in the after sheets. About a quarter of
a mile farther on, we killed two, and pursued several that were
severely wounded in the wing, but they escaped, for they swam off
so rapidly that we could not propel our boat with sufficient force
amidst the tortuous shallows. The Pelicans appeared tame, if not
almost stupid; and at one place, where there were about sixty on an
immense log, could we have gone twenty yards nearer, we might
have killed eight or ten at a single discharge. But we had already a
full cargo, and therefore returned to the vessel, on the decks of
which the wounded birds were allowed to roam at large. We found
these Pelicans hard to kill, and some which were perforated with
buckshot did not expire until eight or ten minutes after they were
fired at. A wonderful instance of this tenacity of life was to be seen
on board a schooner then at anchor in the harbour. A Pelican had
been grazed on the hind part of the head with an ounce ball from a
musket, and yet five days afterwards it was apparently convalescent,
and had become quite gentle. When wounded, they swim rather
sluggishly, and do not attempt to dive, or even to bite, like the Brown
Pelicans, although they are twice as large, and proportionally
stronger. After being shot at, they are perfectly silent, but when
alighted they utter a hollow guttural sound somewhat resembling that
produced by blowing through the bung-hole of a cask.
The White Pelicans appear almost inactive during the greater part of
the day, fishing only soon after sunrise, and again about an hour
before sunset; though at times the whole flock will mount high in the
air, and perform extended gyrations in the manner of the Hooping
Crane, Wood Ibis, and Vultures. These movements are probably
performed for the purpose of assisting their digestion, and of airing
themselves, in the higher and cooler regions of the atmosphere.
Whilst on the ground, they at times spread their wings to the breeze,
or to the rays of the sun; but this act is much more rarely performed
by them than by the Brown Pelicans. When walking, they seem
exceedingly awkward, and like many cowardly individuals of our own
species, are apt to snap at objects which they appear to know
perfectly to be so far superior to them as to disdain taking notice of
them. Their usual manner of flight is precisely similar to that of our
Brown species. It is said by authors that the White Pelican can alight
on trees; but I have never seen a single instance of its doing so. I am
of opinion that the ridge projecting from the upper mandible
increases in size as the bird grows older, and that it uses that
apparatus as a means of defence or of attack, when engaged with its
rivals in the love-season.
The number of small fishes destroyed by a single bird of this species
may appear to you, as it did to me, quite extraordinary. While I was
at General Hernandez’s plantation in East Florida, one of them
chanced to pass close over the house of my generous host, and was
brought dead to the ground. It was not a mature bird, but apparently
about eighteen months old. On opening it, we found in its stomach
several hundreds of fishes, of the size of what are usually called
minnows. Among the many which I have at different times examined,
I never found one containing fishes as large as those commonly
swallowed by the Brown species, which, in my opinion, is more likely
to secure a large fish by plunging upon it from on wing, than a bird
which must swim after its prey.
This beautiful species,—for, Reader, it is truly beautiful, and you
would say so were you to pick it up in all the natural cleanness of its
plumage, from the surface of the water,—carries its crest broadly
expanded, as if divided into two parts from the centre of the head.
The brightness of its eyes seemed to me to rival that of the purest
diamond; and in the love season, or the spring of the year, the
orange-red colour of its legs and feet, as well as of the pouch and
bill, is wonderfully enriched, being as represented in my plate, while
during the autumnal months these parts are pale. Its flesh is rank,
fishy, and nauseous, and therefore quite unfit for food, unless in
cases of extreme necessity. The idea that these birds are easily
caught when gorged with fish, is quite incorrect, for when
approached, on such an occasion, they throw up their food, as
Vultures are wont to do.
I regret exceedingly that I cannot say any thing respecting their
nests, eggs, or young, as I have not been in the countries in which
they are said to breed.
Pelecanus Americanus.
Adult Male. Plate CCCXI.
Bill a little more than thrice the length of the head, rather slender,
almost straight, depressed. Upper mandible linear, depressed,
convex at the base, gradually flattened and a little enlarged to near
the end, when it again narrows, and terminates in a hooked point.
The ridge is broad and convex at the base, becomes gradually
narrowed and flattened beyond the middle, is elevated into a thin
crest about an inch high, of a fibrous structure, and about three
inches in length (in some specimens as much as five inches) which
is continued forwards of less elevation to the extent of an inch
farther. The ridge of the mandible is then narrow and flat, and
terminates in the unguis, which is oblong, slightly carinate above,
curved, obtuse, concave beneath. The edges are very sharp and a
little involute; the lower surface of the mandible has a median
slender sharp ridge, on each side of which, at the distance of a
quarter of an inch is a stronger ridge having a groove in its whole
length; the sides then slope upwards to the incurved margin, and in
this latter space is received the edge of the other mandible. Lower
mandible having its crura separated, very slender, elastic, and
meeting only at the very extremity, so that the angle or interspace
may be described as extremely long, occupying in fact the whole
length of the bill excepting four-twelfths of an inch at the end; for two-
thirds of its length from the base, the lower mandible is broader than
the upper, which is owing to the crura lying obliquely, but beyond the
crest it is narrower; the extremely short dorsal line ascending,
convex, the edges inflected, sharp, and longitudinally grooved. To
the lower mandible, in place of the skin or membrane filling up the
angle in most other birds, is appended a vast sac seven inches in
depth opposite the base of the bill, and extending down the throat
about eight inches, so that its length from the tip of the lower
mandible is twenty-one and a half inches. It is formed of the skin,
which is thin, transparent, elastic, rugous, highly vascular, and
capable of being expanded like a net, supported by the elastic
mandibles to the breadth of nine and a half inches.
Head small, oblong; neck long, stout; body full, rather flattened. Feet
short and very stout; tibia bare at its lower part, covered all round
with small scales; tarsus short, very stout, compressed, covered all
round with hexagonal scales, of which the anterior are much larger;
toes in the same plane, all connected by reticulated webs, the first
shortest, the second an inch shorter than the fourth, which is
considerably longer than the third, scaly at the base, scutellate over
the rest of their extent. Claws short, strong, curved, rather blunt, that
of the middle toe with a sharp pectinate inner edge.
Feathers of the head and neck exceedingly small, slender, and of a
downy texture, those on the fore part of the head a little more
compact; on the nape they are elongated, acuminate, and form a
longitudinal narrow crest, which runs down the back of the neck. The
feathers in general are lanceolate, acuminate, and of moderately
dense texture; those at the junction of the neck and breast anteriorly
are stiffer and more elongated. Wings very long, rather narrow,
rounded; the humerus and cubitus very long in proportion; primaries
much curved; secondaries rather narrow, also incurved toward the
end, the inner extending when the wing is closed far beyond the tips
of the primaries. Tail short, broad, rounded, of twenty-four feathers,
which are broad and abruptly acuminate.
Bill bare, space about the eye, and feet, rich bright yellow, becoming
brighter before their departure for their breeding grounds; claws
yellowish-brown; tip of the bill brighter than the rest. Iris white, in
younger birds dusky. The general colour of the plumage is pure
white; the crest, the elongated feathers on the fore part of the breast,
and those near the edge of the cubitus, pale yellow. The alula,
primary coverts, and primary quills, black, the shafts white, becoming
brownish-black, toward the end. The inner ten secondaries are
white, the rest black, more or less tipped with greyish-white, their
bases white, that colour more extended on the inner than the outer,
the shafts of all the quills white beneath, those of the secondaries
tinged with grey.
Dimensions of an old male. Length to end of tail 61 3/4 inches, to end
of wing 61 3/4, to end of claws 66 3/4, from the point of the bill to the
carpal joint 40; extent of wings 103; wing from flexure 24 1/2; length
of cubitus 15; tail 6 1/4; bill along the ridge 13 3/4, along the edge of
lower mandible 15; breadth of lower mandible at the base 2; bare
part of tibia 1; tarsus 4 8/12; middle toe 4 1/2, its claw 5/8; outer toe
4 1/2, its claw 6/12; inner toe 3, its claw 7/12; hind toe 1 3/4, its claw
8/12. Weight 17 1/2 lb.
The female is rather less, and in as far as I am warranted by the
examination of several individuals in stating, is destitute of the horny
crest of the upper mandible.
A male, shot near Grande Terre, in the Gulf of Mexico, examined.
The skin is very thin, but the subcutaneous cellular tissue is
extremely developed, forming a thick reticular layer over the whole
body. The internal cells are also of vast size, the right hepatic being
4 1/2 inches long, the right abdominal 4 1/2 by 4; the left abdominal
5 1/2 by 4; the clavicular cell is not formed by a single cavity, but of
numberless cellules, like those of the subcutaneous tissue. The
heart n is triangular, pointed, 3 inches long, 2 inches and 10 twelfths
in breadth; the aorta branches at the base, as in other birds, sending
off the two trunks which separate into the subclavian and carotid.
The lobes of the liver are extremely unequal, the right, o, being 4
inches in length, and 2 1/4 in breadth, while the left, p, is only 2
inches long, and 1 1/4 inch broad.

The mandibles are entirely covered with skin, of which the

subcutaneous tissue is wanting, the cutis condensed, and the cuticle
in large irregular longitudinal plates, leaving the surface somewhat
rough and scaly. The crest-like excrescence on the ridge of the
upper mandible is not formed of bone, nor otherwise connected with
the osseous surface, which is smooth and continuous beneath it,
than by being placed upon it, like any other part of the skin, and
when softened by immersion in a liquid may be bent a little to either
side. It is composed internally of erect slender plates of a fibrous
texture, externally of horny fibres, which are erect on the sides, and
longitudinal on the broadened ridge; these fibres being continuous
with the cutis and cuticle. The skin of the mandible is continuous with
that of the pouch, of which the structure is as follows. Externally
there is a layer of cuticle, beneath which is the cutis, extremely thin,
and with the cuticle thrown into longitudinal rugæ when contracted.