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A Blessing in Disguise? Market Power and Growth with Financial Frictions

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  • Joachim Jungherr
  • David Strauss

Abstract

Firm market power raises growth in the presence of financial frictions. The reason is that self financing becomes more effective if firm earnings are higher. We test this mechanism using Korean manufacturing data 1963-2003. We find that more concentrated sectors grow faster. This positive empirical relationship between concentration and growth gets weaker as credit becomes more abundant. Using a simple growth model, we study counterfactuals. The observed rise of concentration in Korea until the mid-1970s has increased manufacturing value added 1963-2003 on average by at least 0:6% per year. The effect of firm market power on worker welfare is ambiguous.

Suggested Citation

  • Joachim Jungherr & David Strauss, 2017. "A Blessing in Disguise? Market Power and Growth with Financial Frictions," Working Papers 998, Barcelona Graduate School of Economics.
  • Handle: RePEc:bge:wpaper:998
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    Keywords

    market power; financial frictions; growth;

    JEL classification:

    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance

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