Industrial market structure and development in East Africa

Abstract

This study examines how industrial market structure plays its role in the process of development of the three East African economies Kenya, Uganda and Tanzania. It provides an examination of the results of studies on market structure in MDC as applied to LDC. There has been continued technological dependency relationship between the less developed and. the developed countries. The developing countries have continued to import technologies and production techniques which have been tested under the conditions in the developed countries which are different from those which ace found in the developing countries. This has resulted in market structures which have exhibited very high frequency of monopoly and oligopoly. This study utilities an analytical model which looks fit the relationship between performance of industries and market structure. In our analysis we assume linear relationship between performance which we have measured by price-cost margin and market structure which is represented by four structural .variables (1) Seller concentration (2) Barriers to entry (3) Import domestic sales ratio and (4) Proportion of output exported. We have hypothesized that concentration and barriers to entry are positively related to price cost margins and import domestic sales ratio and export output ratio are negatively related to price-cost margin. The analysis is done on the whole manufacturing sectors for the three countries and on these sectors divided into two categories - (1) Those industries which process farm out put and (2) Those which do not. Monopoly power in the less developed countries markets does not appear to be directly reflected in the straight forward measurable features like concentration and barriers to entry. These two do not show any significant relationship with per performance , The expected direct relationship between these two features and performance has been mitigated by protection and price control, relationship between concentration and wage levels, and other indirect characteristics in LOC markets (e.g. over invoicing) which make it difficult to evaluate performance. These are the features to which policy should be directed. The external features of market structure Show that their role is also important - import variable continues to show the commonly reached result of negative relationship with performance which calls for import substitution (There are a few occasions in the study "hen this is not supported). A curious result is shown in the negative relationship between performance and exports variable. This result does not suggest that He should not continue to export and expand our export potential but that we must try and reduce exportation costs to the economy so that exports may show overall benefits to the economy