Many developing countries, out of necessity, concentrate on building critical infrastructure such as airports, highways, and shipping ports to foster their growing economies. But once the basics are in place, less visible efforts to improve the flow of goods through a country can have a stronger economic impact than another pier, runway, or paved mile, a recent McKinsey study shows.¹

Governments in markets such as Dubai, Hong Kong, and Singapore already understand the need to balance brick-and-mortar projects with policies, regulations, and enforcement measures. But many other developing nations have a single-minded devotion to expanding their hard infrastructure and thus overlook network components—such as efficient customs clearance and quality trucking services—that can have a strong impact on GDP. We estimate that one Asian country, for example, could increase its GDP by 1.5 to 2 percent as of 2010 if it reduced its logistics costs by 15 to 20 percent. Cutting indirect costs, such as excessive inventory resulting from inefficient supply chains, would account for the bulk of the savings. This estimate doesn't include multiplier effects,² which, we believe, could contribute an additional percentage point to GDP growth. Our experience in other countries shows that these savings are well...