December 06-12- 2023

Competition and Market Power in Latin America and the Caribbean

A Research Network Project
RG-K1198

PROGRESS REPORT 1
Productivity and Market Power: The Case of Manufacturing firms of Peru 2002-
2019

PhD. Mario D. Tello PhD. Daniel S. Tello-Trillo C.Mg. Pablo Rojas

Departamento de Economía Frank Batten School of Leadership and Pontificia Universidad Católica
Pontificia Universidad Católica del Public Policy University of Virginia e del Perú (PUCP)
Perú (PUCP) Investigador del National Bureau of
Economic Research, NBER-USA

1
 INDICE

1. Objective

2. Literature Review

3. Estimation

4. Research Methodology

5. Conclusions

2
 INDICE

1. Objective

2. Literature Review

3. Estimation

4. Research Methodology

5. Conclusions

3
1. Objective

This paper analyzes the impact of measures of market power () on the rate of
growth of total factor productivity () for formal manufacturing firms in Peru in
the period 2002-2019 which are obtained from the National Business Survey
(INEI-EEA 2023). In contrast to the vast empirical literature on the subject, the
analysis, on the one hand, estimate firms’ based upon methodologies provided
by new empirical industrial organization literature (e.g., De Locker & Scott
2022, De Locker & Warzynski 2012, and De Locker 2011, 2011a) and, on the
other hand, uses a non-experimental design with specific 'Causal Machine
Learning' techniques developed by Belloni, Chernozhukov, and Hansen (2014a,
b) and Chernozhukov, Chetverikov, Demirer, Duflo, Hansen, Newey, and Robins
(2018, 2017) to find causal relationships of firms’ on rate of change of . These
techniques essentially reduce the biases of omission of covariates and variables
'confounding' and 'overfitting' of the estimates of the parameter associated to
firms’ market power.

4
 INDICE

1. Objective

2. Literature Review

3. Estimation

4. Research Methodology

5. Conclusions

5
2. Literature Review

6
 INDICE

1. Objective

2. Literature Review

3. Estimation

4. Research Methodology

5. Conclusions

7
3. Estimation

8
 Table 1:
Estimation of Ackerberg, Caves, and Fraze (2015) and De Loecker (2011)
parameters, 2001-2019
Methods
VARIABLES DL (/hS/)
ACF (2015) DL (2011)
0.404***
Capital 0.286
-0.008
0.296***
Labor 0.395
-0.009
0.303***
Materials 0.295
-0.006
Number of products -0.037
Real production value of processed primary
0.276 3.62
products
Real production value of light manufacturing 0.279 3.58
Real production value of technology-intensive
0.28 3.57
sector
Tariffs -0.024
Number of observations 22,076 9,860
Number of unique firms 4,405 1,677
Source: INEI-EEA (2023). Author calculations.

Note: Dependent variable is real value output (US$ 2007). The Stata command used are, for ACF, prodest; and for DL, others constructed. Applicated to ACF method: * Coefficient
is statistically significant at the 10 percent level; ** at the 5 percent level; *** at the 1 percent level; for ACF no asterisk means the coefficient is not different from zero with
statistical significance. Applicated to DL method: The coefficients associated with the companies' products are not reported.

9
Table 2:
Output and Employment Indicators of the Manufacturing Sector of Peru:
2007-2019

Economic Activity SVA (%) dVA/VA (%) SL (%) dL/L (%)

No Group 2007-2019 2007-2019 2007-2019 2007-2019
GDP (thousands of millions, dollars) 141.2 4.6
Employment (thousands of workers) 15933 1.56
Manufacture (% of GDP) 14.43 2.51
Manufacture (% of Employment) 9.93 -0.37
Manufacture 100 100
1 Meat processing and preservation 2.86 4.58 0.69 6.64
2 Preparation and preservation of fish / Production of fish flour and oil 3.61 3.38 2.43 0.18
3 Processing and preservation of fruits and vegetables 1.7 6.97 3.06 9.8
4 Preparation of oils and fats of vegetable and animal origin 1.63 5.84 0.25 43.81
5 Manufacturing of dairy products 1.76 3.18 1.38 1.28
6 Milling, noodles, bakery, and others 5.15 2.75 9.58 0.32
7 Sugar production and refining 0.9 2.9 1.02 -3.29
8 Manufacture of other food products 1.71 3.85 3.01 4.44
9 Preparation of prepared foods for animals 0.67 4.65 0.24 23.04
10 Manufacture of beverages and tobacco products 3.59 4.02 3.18 1.46
11 Textile manufacturing 3.68 -0.34 7.55 -2.53
12 Garment manufacturing 5.75 -0.53 21.58 -1.05
13 Leather and footwear manufacturing 1.42 0.62 4.97 2.36
14 Manufacture of wood and wood products 2.23 -2.4 3.52 1.89

10
 Table 2:
Output and Employment Indicators of the Manufacturing Sector of Peru:
2007-2019

Economic Activity SVA (%) dVA/VA (%) SL (%) dL/L (%)

No Group 2007-2019 2007-2019 2007-2019 2007-2019
15 Manufacturing of paper and paper products 2.83 5.06 0.81 3.66
16 Printing and playing recordings 3.43 2.88 2.45 -1.99
17 Petroleum refining 4.48 1.91 0.23 22.77
18 Manufacture of basic chemicals and fertilizers 1.03 1.77 0.35 189.45
19 Chemical manufacturing 5.31 3.46 1.36 1.91
20 Manufacturing of pharmaceutical products and medicines 1.42 -0.81 1.22 9.9
21 Manufacturing of rubber and plastic products 3.66 3.53 1.98 4.93
22 Manufacturing of non-metallic mineral products 7.86 5.47 3.88 0.52
23 Basic iron and steel industry 1.96 4.95 0.32 29.38
24 Precious metals and non-ferrous metals industry 10.5 -0.52 0.53 2.91
25 Manufacturing of various metal products 4.55 4.95 7.04 4
26 Manufacture of computer, electronic and optical products 0.25 5.45 0.24 10.76
27 Manufacturing of machinery and equipment 3.57 6.76 1.62 1.69
28 Construction of transport material 2.38 11.52 1.04 -0.58
29 Furniture manufacturing 2.7 4.86 7.55 -1.45
30 Other manufacturing industries 7.43 1.77 6.92 0.18
Source: INEI (2023) INEI-ENAHO (2023). Author calculations.
Note: All values in real dollars 2007.

11
Table 3:
Value Added Share (SVA), Exports Share (SE) and Concentration Ratios
of the Manufacturing Sector of Peru, 2007-2019

Economic Activity SVA (%) SE (%) ICD (% ) ICT (%)

No Group 2007-2019 2007-2019 2007-2019 2007-2019
National 57 15.61
Manufacture 31.09 24.25 39.48 26.48
1 Manufacturing of dairy products 24.33 5.82 87.17 77.72
2 Preparation of oils and fats of vegetable and animal origin 32.07 7.43 77.66 70.97
3 Manufacture of beverages and tobacco products 33.37 1.09 73.64 66.9
4 Processing and preservation of fruits and vegetables 29.9 52.38 54.54 50.91
5 Preparation and preservation of fish / Production of fish flour and oil 32.76 81.34 46.61 46.34
6 Manufacturing of non-metallic mineral products 45.47 5.73 47.61 45.81
7 Sugar production and refining 29.65 8.24 50.69 43.81
8 Precious metals and non-ferrous metals industry 38.71 75.85 40.02 38.47
9 Manufacturing of pharmaceutical products and medicines 38.28 4.87 86.9 34.58
10 Manufacturing of paper and paper products 33.03 6.69 47.07 32.46
11 Chemical manufacturing 37.51 7.21 43.36 28.74
12 Basic iron and steel industry 31.43 10.68 58.99 27.79
13 Manufacturing of rubber and plastic products 27.77 14.48 38.9 27.16
14 Textile manufacturing 35.73 15.97 34.6 24.29

12
 Table 3:
Value Added Share (SVA), Exports Share (SE) and Concentration Ratios
of the Manufacturing Sector of Peru, 2007-2019

Economic Activity SVA (%) SE (%) ICD (% ) ICT (%)

No Group 2007-2019 2007-2019 2013-2019 2013-2019
15 Manufacture of other food products 21.89 45.42 29.34 21.96
16 Petroleum refining 11.95 29.67 29.69 21.61
17 Printing and playing recordings 43.56 0.7 21.08 19.7
18 Manufacture of basic chemicals and fertilizers 28.04 71.07 88.52 17.43
19 Preparation of prepared foods for animals 18.34 12.62 19.79 15.15
20 Manufacturing of various metal products 34.34 6.07 19.18 14.49
21 Milling, noodles, bakery, and others 25.71 3.42 15.08 14.37
22 Garment manufacturing 36.05 34.61 18.37 14.22
23 Manufacturing of machinery and equipment 33.49 13.95 26.23 7.82
24 Furniture manufacturing 37.41 1.34 7.14 6.33
25 Other manufacturing industries 48.36 61 8.46 6.23
26 Leather and footwear manufacturing 40.03 6.13 9.78 5.77
27 Manufacture of wood and wood products 38.35 11.21 5.06 3.94
28 Construction of transport material 41.34 6.1 14.62 3.81
29 Manufacture of computer, electronic and optical products 28.95 33.77 81.78 3.04
30 Meat processing and preservation 14.74 0.47 2.46 2.54
Source: INEI (2023) PeruTop (2023). Author calculations.
Note: SVA is the share of US$ 2007 real value added out of the total US$ 2007 real production value. SE is the share US$2007 real export value out of total US$ 2007 real production
value. IC D is the domestic index of concentration of the top 20 firms of each sector and IC T .is the same index but with respect and total output domestic and imported. For data
limitations only 17 sectors achieved that requirement. Sectors number 1, 2, 7, 9, 13, 14, 17, 24, y 28 have concentration ratios with less than 20 top firms. Additionally, in 4 sectors data
are obtained only for the firms reported in PeruTop (2023). These sectors are preparation of oils and fats, manufacturing of dairy products, manufacture of basic chemicals and fertilizers
and basic iron and steel industry. The number of top firms of the concentration ratios of these sectors are respectively 1 ,2 ,10 and 1.

13
Table 4:
Firms Productive Features for Peruvian Manufacturing Sectors Level 2007-
2019
Economic Activity MS1 (%) MS2 (%)
N° Group 2007-2019 2007-2019 2007-2019 2007-2019
Manufacture 4.3 2.93 104.6 88.3
1 Textile manufacturing 15.66 11.5 88.2 81
2 Manufacturing of rubber and plastic products 12.82 9.28 92.2 88.6
3 Manufacturing of pharmaceutical products and medicines 19.53 9.09 85.8 75.7
4 Manufacturing of non-metallic mineral products 8.72 8.38 91.6 86.1
5 Garment manufacturing 6.87 5.64 89.2 105.5
6 Printing and playing recordings 5.39 5.05 89.3 73.2
7 Manufacturing of paper and paper products 7.35 5.02 87.8 81.5
8 Basic iron and steel industry 10.91 4.89 93 125.5
9 Manufacture of beverages and tobacco products 5.12 4.65 84.8 89.1
10 Manufacturing of various metal products 5.87 4.43 241.2 94.9
11 Chemical manufacturing 5.76 3.89 88 92.2
12 Furniture manufacturing 3.08 2.77 92.2 76.1
13 Precious metals and non-ferrous metals industry 2.62 2.48 101.4 143.9
14 Manufacture of other food products 3.16 2.42 94.8 114.2
15 Leather and footwear manufacturing 3.58 2.26 92.5 91.5
16 Manufacturing of machinery and equipment 7.68 2.13 85.8 77.9
17 Manufacture of basic chemicals and fertilizers 9.51 1.96 92.7 100.6
18 Manufacture of wood and wood products 2.29 1.9 118.6 95.1
19 Milling, noodles, bakery, and others 1.7 1.62 94.7 78.9
20 Other manufacturing industries 1.14 0.87 83.3 75.5
21 Construction of transport material 3.37 0.82 91.8 75.3
22 Manufacture of computer, electronic and optical products 2.89 0.12 90.1 62

Source: INEI (2023) INEI-EEA (2023). Author calculations.

Note: The sample is 7,469. The price cost margin (PCM) was calculated with the following equation: where represents the income of the firms, as the salary cost and as the cost of the intermediate
input. The market power, , is calculated using the methods of Ackerberg, Caves, and Fraze, ACF; and De Loecker, DL. 14
n.a. = not applicable.
 Table 5:
Firms Productive Features for Peruvian Manufacturing Sectors Level 2007-
2019 (Continuation)
Economic activity PCM
N° Group 2013-2019 2013-2019 2013-2019
Manufacture 2.672 2.295 2.672
1 Manufacture of wood and wood products 3.35 2.843 3.35
2 Manufacturing of paper and paper products 2.967 2.889 2.967
3 Manufacture of beverages and tobacco products 2.867 2.767 2.867
4 Textile manufacturing 2.737 2.31 2.737
5 Furniture manufacturing 2.733 2.089 2.733
6 Manufacturing of rubber and plastic products 2.629 2.518 2.629
7 Milling, noodles, bakery, and others 2.577 2.162 2.577
8 Leather and footwear manufacturing 2.575 2.55 2.575
9 Manufacture of basic chemicals and fertilizers 2.446 2.869 2.446
10 Manufacturing of non-metallic mineral products 2.428 2.405 2.428
11 Construction of transport material 2.405 2.184 2.405
12 Manufacturing of various metal products 2.39 2.259 2.39
13 Manufacture of other food products 2.384 3.048 2.384
14 Other manufacturing industries 2.341 2.037 2.341
15 Manufacture of computer, electronic and optical products 2.246 1.863 2.246
16 Basic iron and steel industry 2.239 2.097 2.239
17 Printing and playing recordings 2.176 1.988 2.176
18 Precious metals and non-ferrous metals industry 2.128 2.519 2.128
19 Chemical manufacturing 2.026 2.37 2.026
20 Garment manufacturing 2.01 1.853 2.01
21 Manufacturing of machinery and equipment 1.779 1.893 1.779
22 Manufacturing of pharmaceutical products and medicines 1.698 1.69 1.698
Source: INEI (2023) INEI-EEA (2023). Author calculations.
Note: The sample is 7,469. The price cost margin (PCM) was calculated with the following equation: where represents the income of the firms, as the salary cost and as the cost of the intermediate input.
The market power, , is calculated using the methods of Ackerberg, Caves, and Fraze, ACF; and De Loecker, DL. 15
n.a. = not applicable.
 Figure 1: Annual Average of Firms’ Total Factor Productivity and Market
Power, 2007-2019

4 120

110
3.5

100
3

90

2.5
80

2
70

1.5 60
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Market power ACF Market power DL TFP ACF TFP DL

Source: INEI (2023) INEI-EEA (2023). Author calculations.

16
Table 6:
Correlations Coefficients of Market Share, Total Factor Productivity, Growth
of Total Factor Productivity and Market Power, 2007-2019
Correlation MS1 MS2

MS1 1
MS2 0.626*** 1
-0.010 0.004 1
0.108*** 0.130*** 0.248 1

-0.019 -0.012 0.617*** 0.19*** 1

0.028** 0.039*** 0.214*** 0.523*** 0.344*** 1

0.112*** 0.128*** 0.020* 0.406*** 0.006 0.225*** 1

- 1
-0.032*** 0.020* -0.021* -0.130*** -0.033** -0.072***
0.262***
- 1
0.009 0.048*** -0.04*** -0.019 -0.049*** -0.041*** 0.802***
0.095***
0.008 0.005 0.045*** 0.044*** 0.069*** 0.206*** 0.037*** -0.011 -0.004 1
- 1
- 0.189**
-0.018 -0.023* 0.004 -0.062*** -0.036*** -0.281*** 0.22*** 0.08**
0.043*** * *
- 0.235** - 0.89** 1
-0.023* -0.029** -0.004 -0.082*** -0.054*** -0.258*** 0.182*** 0.06** *
0.048*** * *

Source: INEI (2023) INEI-EEA (2023). Author calculations.

Note: The sample is 7,469. The market share (MS1 and MS2) comes from the sum of the participation of the firm’s production in the sector as percentage of the gross production value and gross production
value + imports, respectively. The price cost margin (PCM) was calculated with the following equation: where represents the income of the firms, as the salary cost and as the cost of the intermediate
input. The total factor productivity and market power was calculated from the output of the methods of Ackerberg, Caves, and Fraze, ACF; and De Loecker, DL. See the Annex 1 and 2 for more details.

17
 Table 7:
Correlations of Market Shahe, Total Factor Productivity, Growth of Total
Factor Productivity and Market Power, years 2007-2019

Correlation MS1 MS2

MS1 1
MS2 0.945*** 1
0.601** 0.510* 1
0.144 0.183 0.503 1

-0.023 0.068 0.516* 0.608** 1

0.055 0.223 0.331 0.741*** 0.777*** 1

PCM 1
0.359 0.291 0.569** 0.869*** 0.285 0.418
1
-0.385 -0.302 -0.594** -0.804*** -0.213 -0.320
1
-0.503* -0.420 -0.539* -0.625** -0.072 -0.213
-0.01 0.136 0.198 0.654** 0.706*** 0.945*** 0.342
-0.23 -0.117 1
- -
0.102 -0.066 -0.101 -0.433 -0.722*** -0.87*** -0.058 -0.139 1
0.049 0.909***
- 1
0.074 -0.062 0.267 -0.031 0.008 -0.244 0.14 -0.077 -0.284 0.437
0.176

Source: INEI (2023) INEI-EEA (2023). Author calculations.

Note: The sample is 13. The market share (1 and 2) comes from the sum of the participation of the firm’s production in the sector as percentage of the gross production value and gross production value +
imports, respectively. The price cost margin (PCM) was calculated with the following equation: where represents the income of the firms, as the salary cost and as the cost of the intermediate input. The
total factor productivity and market power was calculated from the output of the methods of Ackerberg, Caves, and Fraze, ACF, and De Loecker, DL. See the Annex 1 and 2 for
more details.

18
 INDICE

1. Objective

2. Literature Review

3. Estimation

4. Research Methodology

5. Conclusions

19
4. Research Methodoly

20
 INDICE

1. Objective

2. Literature Review

3. Estimation

4. Research Methodology

5. Conclusions

21
4. Conclusions

22
MUCHAS GRACIAS…..