Foreign Competition, Industrial Concentration and Profitability in Manufacturing Sectors in Bangladesh

Empirical research on industrial organization has provided useful insights into the relationship between industrial structure and performance both for developed and developing economies. Most studies have confirmed the hypothesised relationship between market structure and profitability by finding a significant association between profitability and industrial concentration. In recent years there is growing consensus among economists that, along with concentration, the extent of foreign competition significantly influences the performance of the domestic industries. This leads to a number of industrial organization studies incorporating a foreign competition variable. The incorporation of foreign competition variable has been achieved in different ways. Some studies (Esposito and Esposito 1971; Pagoulatos and Sorensen 1976) treated the market share of imports as an additive influence on domestic profitability. In other studies (Jacquemin et al 1980; Pugel 1980; and Turner 1980) the influence of import competition on profitability is conditional upon the competitive structure of domestic sellers as foreign and domestic sellers together represent the supply side of the market. Accordingly, in such studies, market shares of imports are used interactively with domestic concentration to test their joint influence on profitability. There is now ample evidence for developed countries that foreign competition variables exerted a strong impact on the domestic profitability (see Nakao Appendix Table Al). The evidence for the developing countries is relatively little. So far no study has been under taken to examine the relation between profitability and market structure variables in manufacturing sector of Bangladesh