Imperfect competition, scale economies and external economies of selected manufacturing industries in Colombia, Indonesia, and Korea

This dissertation takes a neoclassical approach to study the industrialization in three developing economies, Columbia, Indonesia and Korea. It focuses on individual industries concerning the extent of market competition, technologies and external economies. Chapter II sets the stage for what is developed in later chapters by presenting a broad picture of the industrial development in the three countries. In Chapter III, I follow Solow's (1957) method to decompose the contribution to real growth of output into growth of inputs (capital and labor) and growth of productivity. It provides an overview of the industrial performance in the three countries. Chapter IV tests the hypothesis of Hall (1988) regarding imperfect competition. Hall's (1988) hypothesis of imperfect competition generates a strong prediction in comparing the output/labor elasticity with labor's wage share in revenue. The empirical evidence supports Hall's (1988) hypothesis of imperfect competition. Chapter V argues for the joint estimation of firms' market power and scale economies in a market. It tests the relationship between the two parameters as implied in their cost definition. Capital elasticity is found characteristically low for Columbian industries. This may be attributed to the negative effect of government development strategy designed for protecting its capital goods market. Chapter VI uses input and output data at both industry and aggregate manufacturing level to evaluate the argument of Caballero and Lyons (1989) that there exist scale economies that are internal within aggregate manufacturing but external to an individual industry. The empirical model demonstrates (i) how an increase in aggregate output affects individual industry; (ii) how scale economies become internal when industry output is aggregated to manufacturing output. The data pattern suggests once within-industry variance is suppressed by cross section constraints (common parameters), the data appears to be consistent with the theoretical arguments for external economies.