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Market structure, external exposure and industry profitability: evidence from taiwan

Author

Listed:
  • Song-Ken Hsu
  • Ming-Fang Tsai
  • Chih-Hai Yang

Abstract

This article aims to investigate empirically the influences of concentration, exports, and exchange rate on industry profitability in a small open economy, in Taiwan. Developing a simple theoretical framework and utilizing panel data of four-digit manufacturing industries over the period 1986-96 to test our findings indicate that concentration has a positive impact on profit margin, while the impacts of export intensity and external exposure are significantly negative. This result indicates that export-intensive industries tend to have a lower profitability in Taiwan, because export firms act as price takers in international markets. Moreover, the exchange rate is found to have a relatively strong and significant effect on industry profitability, whereby the devaluation of the New Taiwan Dollar hurts more those industries with a higher share of imported inputs during the sample period.

Suggested Citation

  • Song-Ken Hsu & Ming-Fang Tsai & Chih-Hai Yang, 2008. "Market structure, external exposure and industry profitability: evidence from taiwan," International Economic Journal, Taylor & Francis Journals, vol. 22(2), pages 201-214.
  • Handle: RePEc:taf:intecj:v:22:y:2008:i:2:p:201-214
    DOI: 10.1080/10168730802079805
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