Market Size, Sunk Costs of Entry, and Transport Costs : An Empirical Evaluation of the Impact of Demand-Side Factors versus Supply-Side Factors on Manufacturing Productivity
This paper uses plant-level, panel data from the Ethiopian manufacturing census to estimate the effects of demand-side and supply-side factors on industrywide aggregate productivity. The paper focuses on the effects of three factors: (1) local mark...
| Main Authors: | , , , |
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| Language: | English |
| Published: |
World Bank, Washington, DC
2019
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| Subjects: | |
| Online Access: | http://documents.worldbank.org/curated/en/732571560169924956/Market-Size-Sunk-Costs-of-Entry-and-Transport-Costs-An-Empirical-Evaluation-of-the-Impact-of-Demand-Side-Factors-versus-Supply-Side-Factors-on-Manufacturing-Productivity http://hdl.handle.net/10986/31865 |
| Summary: | This paper uses plant-level, panel data
from the Ethiopian manufacturing census to estimate the
effects of demand-side and supply-side factors on
industrywide aggregate productivity. The paper focuses on
the effects of three factors: (1) local market size, (2) the
value of transportation costs that firms incur in selling to
customers outside their market, and (3) licensing fees
needed to enter the market. Identification is based on a
model of production under monopolistic competition, which
enables interpreting the estimated coefficients of a reduced
form, dynamic productivity equation. The paper analyzes 11
industries in Ethiopia over 2000 to 2010. Several
interesting results emerge. In the most parsimonious
specification, the estimated coefficients are consistent
with all three predictions of the model—but only for one
industry: cinder blocks. In this industry, the expansion of
the local market boosts industrywide total factor revenue
productivity, while increases in transport costs and
licensing fees reduce it. The picture is somewhat mixed in
the other 10 industries but broadly consistent with the
predictions of the model. |
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