| Research Abstract |
One of the oldest problems economic policy makers face is how to deal with market failures that can result from imperfect competition. However, before they can design appropriate policy responses, policy makers must first determine the extent of such market failures, their causes, and the resulting implications for economic performance. Unfortunately, the empirical evidence on alternative market structures and their consequences in developing economies is sparse. Moreover, there are no known studies that systematically analyze interrelationships between market structure and firm behavior in East Asia's developing economies. The objective of this project is to help fill this gap in the literature by analyzing these interrelationships for China, Taiwan, Indonesia, Malaysia, Thailand, and Vietnam.
The studies in this project generate three major sets of conclusions. First, research and development (R&D) appears to act as an entry barrier leading to increasing concentration in Taiwan's indu
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stries with low R&D intensity, but the reverse is true in industries with high R&D intensity, and R&D does not appear to affect concentration in China. In Vietnam, the presence of state-owned enterprises (SOEs) and foreign-owned multinational corporations (MNCs) also appears to have acted as an entry barrier leading to increased concentration. In Indonesia, concentration fell relatively little but appears to have been positively correlated with MNC presence or changes in MNC presence. On the other hand, MNC presence led to reduced concentration in China and was largely unrelated to changes in Thai concentration, where conglomerate presence appears to have been stronger entry barrier. Second, concentration does not appear to have a strong feedback to R&D efforts in China. In about half of the Vietnamese industry groups examined, the relationship between concentration, on the one hand, and productivity or compensation on the other, was negative, but this relationship was not strong in others. On the other hand, in Thai industries with low import protection, higher concentration was associated with higher productivity, while this correlation was not strong in highly protected industries. In Malaysia, the decision to engage in R&D appears to have an important positive impact on exporting and productivity in Malaysia. Third, foreign MNCs made important contributions to employment generation, both directly and indirectly in China. MNCs generally had higher productivity and paid more compensation than local firms in Vietnam, but productivity differentials were not as strong as compensation differentials. Productivity and compensation spillovers from MNCs to private Vietnamese firms are not very strong if panel estimation techniques are used, but spillovers from SOEs appear to have been negative. Finally, in the Thai case, productivity spillovers appear to be greatest in industries with low protection, again highlighting import competition's important role in creating absorptive capacity in local firms. Less
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