Competition and productivity growth in South Africa

Abstract

This article shows that mark-ups are significantly higher in South African manufacturing industries than they are in corresponding industries worldwide. We test for the consequences of this low-level of product market competition on productivity growth. The results of the paper are that high mark-ups have a large negative impact on productivity growth in South African manufacturing industry. Our results are robust to three different data sources, two alternative measures of productivity growth, and three distinct measures of the mark-up. Controlling for potential endogeneity of regressors does not eliminate the findings. Copyright (c) 2008 The Authors. Journal compilation (c) 2008 The European Bank for Reconstruction and Development.

The Impact of Trade Integration with the European Union on Productivity in a Posttransition Economy: The Case of Polish Manufacturing Sectors

“…24 As a research and development proxy (only in the case of Poland, due to problems with gathering a full set of such data for the partner countries), we employed the data on expenditure on R&D as a share of value added. 25 Next, we considered the Downloaded by [University of Otago] at 15:05 23 July 2015 degree of competition proxied by price cost margin, measured as in Aghion et al (2007) and being the difference between VA and labor compensation expressed as a proportion of gross output. 26 To check the effects of foreign investment flows on productivity growth, we incorporated into our empirical model a sector-specific measure of FDI (inward and outward, alternatively in estimates with import and export openness) concerning Polish manufacturing sectors 27 (we do not have analogous information for all the foreign sectors).…”

Testing creative destruction in an opening economy

“…The impact of pricing power continues to have the statistically significant negative impact on productivity growth () noted in Aghion et al . (). Indeed, the economic size of the impact is approximately double that found for the closed economy model of the earlier study.…”

“…However, given the findings of Aghion et al . () on the impact of market structure on productivity growth, and of Fedderke () on the impact of poor human capital endowments and low R&D investment by South African manufacturing on productivity growth, these findings are not surprising.…”

“… Effective rate of protection and Nominal Tariff: from Edwards (); change in employment: authors calculations from Trade and Industry Policy Strategies (TIPS) database; and change in pricing power: from Aghion et al . (). The Change in Employment is calculated relative to trend. …”

“…For measures of industry pricing power, we employ the estimated values of the mark‐up of price over marginal cost of production of Aghion et al . () obtained from the Roeger () methodology. Given the focus of the present study on the impact of trade liberalization on productivity growth, accurate measures of openness or protection are crucial. For our openness indicators, we employ data on effective rates of protection and scheduled nominal tariff rates obtained from Edwards () …”