Productivity and Market Power: The Case of Manufacturing firms of Peru 2002-2019

As many advanced economies (IMF 2019, De Loecker & Eeckhout 2021), firms’ market power and concentration seem to be risen in Latin America and Caribbean countries with negative economic and political effects at the macro level and in some specific sectors (Eslava, Melendez, Urdaneta 2021; UNDP 2021 a, b; Hordones &. Zoratto 2021; Ji & Yépez-García 2017; and Tello 2022). However, the estimations of market power and concentration and their impacts on countries and firms’ performance have followed the structure-conductperformance industrial organization (SCPIO) paradigm, highly criticized, and rejected by IO experts (e.g., Berry, Gaynor, Scott 2019, Bresnahan 1988 and Schmalensee 1989). In contrast to the ad-hoc SCT specifications and estimations, the IO experts’ alternative approach of the market analysis (originated by Bresnahan 1988 and Schmalensee 1989) called the new empirical IO (NEIO) is based upon methods for understanding firm conduct and markets on the basis of the relevant economic primitives: demand, cost, and pricing conduct. Thus, under the assumptions that firms maximize profits and must cover their total costs, the equilibrium price (and other outcomes) will be determined by demand, marginal costs, and fixed (possibly sunk) costs, along with the conditions of competition that shapes the pricing behavior (Berry et al 2019). Surprisingly, Angrist & Pischke (2010) do not give merit to what they call the Credibility Revolution in Empirical Economics of Industrial Disorganization which impose a superstructure of assumptions for market analysis which should be of concern. Instead, they advocate for better research designs and simple and transparent empirical methods of direct causal analysis that trace a shorter route from facts to findings (e.g., the work of Hastings 2004 or the work of Hausman and Leonard’s 2002 who combine both approaches, the causal and the NEIO). These criticisms are well understood by De Loecker & Scott (2022). In a positive note these authors suggest that for the case of market power estimations combining the NEIO demand and production approaches may assist researchers in selecting assumptions and evaluating structural models. On the other hand, although Angrist & Pischke (2010) find that empirical results generated by a good research design more compelling than the conclusions derived from a good theory, they hope to see industrial organization move towards stronger and more transparent identification strategies in a structural framework. Given these approaches to analyze markets, this project combines the causality and the NEIO approaches to estimate, on the one hand, market power and firms’ total factor productivity -TFP- and, on other hand, to evaluate the impact of market power on the rate of total factor productivity growth of manufacturing firms of Peru for period 2002-2019. Subject to the statistical results, the proposal ultimate goal is not only to find any causal relationship between market power and firms’ total factor productivity but also to provide some guidelines of competition industrial policies.

the general objective of the project is to investigate the causal relationship between PCM and productivity for a sample of formal enterprises of the manufacturing sector of Peru, period 2002-2019.

i) Estimate firms’ 𝑃𝐶𝑀𝑠 using the production approach described in De Loecker & Scott (2022), De Loecker &. Warzynski (2012), De Loecker, J. (2011) and references therein. ii) Estimate firms’ total factor productivity index 𝑙𝑛𝐼𝑇𝐹𝑃 using firms production data and De Locker (2011a) method. iii) To analyze the causal relationships of firms’ price-cost margins on the rate of change of total factor productivity base upon causal machine learning techniques (i.e., 𝐷𝑀𝐿 ‘double debiased’ method).

De acuerdo con los resultados encontrados, la propuesta espera llegar a algunas sugerencias de políticas sobre políticas industriales (de mercado) consistentes con los resultados y espera señalar formas de mejorar la estructura de los modelos del estilo NEIO utilizando la idea de Hendren y asociados (2020).

Ampliar la literatura sobre el margen precio-costo (PCM) en la tasa de crecimiento de la productividad de las empresas

Investigacion aplicada

Disciplinario

ADMINISTRADO

LIMA - LIMA - SAN MIGUEL

• 73 — Macroeconomía y economía monetaria

Ciencias sociales - Economía, Negocios - Economía

PONTIFICIA UNIVERSIDAD CATÓLICA DEL PERÚ