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Industry Concentration in South African Manufacturing Industry: Trends and Consequences, 1972-96

  • Johannes Fedderke
  • Gabor Szalontai

This paper examines industry concentration for the South African manufacturing sector over the 1972-1996 period, for the three digit industry classification. The paper notes both the high level of industry concentration in South African manufacturing, and a rising trend in concentration across a wide range of industries. The paper further explores the impact that industry concentration has on a wide range of indicators of industry performance. We find that increased concentration serves to lower output growth, raise unit labour costs, and to lower labour productivity. The impact on employment, total factor productivity and investment rates based on bivariate examinations of the data are ambiguous. The paper concludes by examining the impact of concentration on employment and investment rates using a dynamic heterogeneous panel estimation methodology. We find that increased concentration unambiguously lowers employment. For investment rates, increased inequality of market share serves to raise investment rates, while falling firm numbers for any given inequality of market share lowers investment rates. The difference can be interpreted as the distinct impact that the pursuit of managerial objectives (large market share promoting further productive capacity expansion) and that market contestability (under falling numbers of firms in an industry, monopolistic incentives to curtail productive capacity rise) have on investment.

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Paper provided by Economic Research Southern Africa in its series Working Papers with number 23.

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Length: 43 pages
Date of creation: 2005
Date of revision:
Handle: RePEc:rza:wpaper:23
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  1. Blundell, Richard & Griffith, Rachel & van Reenen, John, 1999. "Market Share, Market Value and Innovation in a Panel of British Manufacturing Firms," Review of Economic Studies, Wiley Blackwell, vol. 66(3), pages 529-54, July.
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  5. Engle, Robert F & Lilien, David M & Robins, Russell P, 1987. "Estimating Time Varying Risk Premia in the Term Structure: The Arch-M Model," Econometrica, Econometric Society, vol. 55(2), pages 391-407, March.
  6. Philippe Aghion & Johannes Fedderke & Peter Howitt & Chandana Kularatne & Nicola Viegi, 2008. "Testing Creative Destruction in an Opening Economy : the Case of the South African Manufacturing Inudstries," Documents de Travail de l'OFCE 2008-23, Observatoire Francais des Conjonctures Economiques (OFCE).
  7. Pagan, Adrian & Ullah, Aman, 1988. "The Econometric Analysis of Models with Risk Terms," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 3(2), pages 87-105, April.
  8. Pesaran, M. Hashem & Smith, Ron, 1995. "Estimating long-run relationships from dynamic heterogeneous panels," Journal of Econometrics, Elsevier, vol. 68(1), pages 79-113, July.
  9. David Fielding,, . "Manufacturing Investment in South Africa: A Time-Series Model," Discussion Papers 97/5, University of Nottingham, CREDIT.
  10. Luigi Guiso & Giuseppe Parigi, 1999. "Investment And Demand Uncertainty," The Quarterly Journal of Economics, MIT Press, vol. 114(1), pages 185-227, February.
  11. Hine, Robert C & Wright, Peter W, 1998. "Trade with Low Wage Economies, Employment and Productivity in UK Manufacturing," Economic Journal, Royal Economic Society, vol. 108(450), pages 1500-1510, September.
  12. Ferderer, J Peter, 1993. "The Impact of Uncertainty on Aggregate Investment Spending: An Empirical Analysis," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 25(1), pages 30-48, February.
  13. F. C. v. N. FOURIE & M. R. SMIT, 1989. "Trends in Economic Concentration in South Africa," South African Journal of Economics, Economic Society of South Africa, vol. 57(3), pages 156-167, 09.
  14. Johannes Fedderke, 2004. "Investment in Fixed Capital Stock: Testing for the Impact of Sectoral and Systemic Uncertainty," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 66(2), pages 165-187, 05.
  15. Bond, Stephen & Van Reenen, John, 2007. "Microeconometric Models of Investment and Employment," Handbook of Econometrics, in: J.J. Heckman & E.E. Leamer (ed.), Handbook of Econometrics, edition 1, volume 6, chapter 65 Elsevier.
  16. Hartman, Richard, 1972. "The effects of price and cost uncertainty on investment," Journal of Economic Theory, Elsevier, vol. 5(2), pages 258-266, October.
  17. L Edwards, 2001. "Globalisation And The Skills Bias Of Occupational Employment In South Africa," South African Journal of Economics, Economic Society of South Africa, vol. 69(1), pages 40-71, 03.
  18. James R. Hines Jr., 1998. "Investment Ramifications of Distortionary Tax Subsidies," NBER Working Papers 6615, National Bureau of Economic Research, Inc.
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