The competitive conditions in the OECD manufacturing industry

Abstract

The goal of this study was to assess the intensity of competition in the OECD manufacturing industry by using the Panzar and Rosse index over the period 1970–2011. For this purpose, we use the fully modified OLS method and second-generation unit root analysis to investigate the level of competition across two-digit manufacturing sectors. The results are robust and consistent with similar studies, leading to the rejection of perfect collusion and perfect competition, while providing evidence in favour of monopolistic competition. Similarly to other empirical studies, H-statistics are shown to be heterogeneous across manufacturing sectors. We argue that more concentrated sectors such as food and beverages, motor vehicles and furniture have low levels of H-statistic being thus less competitive than other industries (i.e. computers transportation equipment, printing and chemicals), where the H-statistic is closer to unity. Lastly, our analysis will be a useful policy tool to achieve structural micro-economic goals.

Keywords:

• monopolistic competition
• panel data
• Panzar and Rosse index
• FMOLS
• manufacturing

JEL Classification:

• L13
• L60
• C23
• C51

Acknowledgements

The authors wish to thank Associate Professor Vassilis Monastiriotis, from London School of Economics, and two anonymous referees of this journal for their fruitful comments and suggestions on earlier version of this article. The remaining errors belong to the authors. The usual disclaimer applies.

Notes

¹ Capital letters denote variables in their natural logarithms.

² Due to space limitations, the stationarity tests for each of the two-digit industry sector are not reported here, but they are available from the authors upon request.

³ We thank a referee for suggesting this extension to the reporting of our results on a previous version of the article.