Working Paper: NBER ID: w8766
Authors: Bee Yan Aw; Sukkyun Chung; Mark J. Roberts
Abstract: Industry cost and demand conditions can vary across countries leading to differences in industry market structure, including the distribution of output and productivity across firms and the magnitude of entry and exit flows. It has been argued that despite many outward similarities, two of the most successful Southeast Asian economies, Taiwan and South Korea, differ systematically in the nature of entry costs, the competitiveness of output markets, and the working of their capital markets. In this paper we use micro panel data for producers in seven two-digit manufacturing industries in South Korea and Taiwan and identify a number of systematic differences in industry structure between the two countries. Our empirical findings indicate that, relative to their counterparts in Korea, Taiwanese industries are characterized by less concentrated market structure, more producer turnover, smaller within-industry productivity dispersion across producers, a smaller percentage of plants operating at low productivity levels, and smaller productivity differentials between surviving and failing producers. These patterns are consistent with strong competitive pressures in Taiwan that lead to market selection based on productivity differences. In contrast, the patterns in Korea are consistent with the presence of some impediments to exit or entry that insulate inefficient producers from market pressures.
Keywords: Productivity; Manufacturing; Market Structure; Entry Costs; Taiwan; Korea
JEL Codes: D2; L0
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Taiwan's lower entry costs (F29) | more efficient market outcomes (D61) |
| Taiwan's greater competitive pressures (F69) | more producer turnover (J63) |
| Taiwan's less concentrated market structures (L19) | smaller productivity differentials between surviving and failing producers (D29) |
| Higher entry costs in Korea (L22) | less producer turnover (J63) |
| Higher entry costs in Korea (L22) | higher concentration of low productivity plants (Q29) |
| Taiwan's strong competitive pressures (P19) | stronger market selection based on productivity differences (L19) |