Market power and the big push in a developing country: The case of agro-exports in northern Honduras

This dissertation introduces strategic market power into the "Big Push" literature. Based on the insights of an empirical case study of a Big Push in northern Honduras, it highlights the issues that arise in implementing Big Push policy under liquidity constraints, among which market power is preeminent.; The Big Push literature suggests that the government may have a role to play in correcting market failures due to the presence of complementarities, by inducing producers to initiate complementary activities. However, the literature abstracts from the problems of implementation, and from any considerations of market structure. The case-study undertaken here (the first empirical study of an attempted Big Push) compares similar policies in two regions of northern Honduras, in which the success of the Big Push hinged on the initial presence of competitive forces. Because initiating complementary production activities requires sunk investments, firms participating in the Big Push are at risk of "hold-up" by firms with market power. Agents seeking the opportunity to exercise market power engaged in extralegal rent-seeking and overcame government precautions against hold-up. The risk of hold-up deterred other potential producers from responding to the Big Push.; The case-study highlights the dual role of market power: market power was allowed to develop in Honduras because it reduced the cost of a Big Push. Generally speaking, firms with market power can use their strategic influence to further the Big Push, and have strong incentives to do so. But market power can undermine a Big Push if it leads to hold-up. If institutions such as contract enforcement or price regulation are not able to prevent hold-up, a Big Push policy must also undertake the costly endeavor of fostering competitive markets. Because market power has widely divergent consequences depending on the strength of institutions, credit constraints and institutional constraints may prevent many developing countries from implementing a Big Push. Many economies have bleaker prospects for a successful Big Push than had previously been thought.