Concrete Thinking About Development

This paper uses new micro-data on key input prices in the construction sector and market structure to understand the reasons for price differences and their implications for capital accumulation. Our key motivating facts are that (i) there is large dispersion in prices of eight key construction sector inputs and that cement prices were particularly high in Sub-Saharan Africa compared to the rest of the world; (ii) using data on the market structure of the cement industry at a global level, cement prices are highest in countries with few firms; (iii) cement plays a significant role in construction sector expenditures, particularly in the poorest countries. Estimates from our model of oligopoly suggest that lower levels of competition lead to significantly higher prices. Financial accounts data point toward substantial pure profits, and there is no evidence from plant size distributions that minimum efficient scale is driving high prices. Finally, embedding the oligopoly model into a neoclassical growth model, we show that distortions in investment producing sectors have a disproportionate impact on productive capacity and that the steady-state capital stock in the poorest countries is most sensitive to changes in markups in cement.