Analysing the determinants of concentration in the South African manufacturing industry
Van Niekerk, R.P.
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Seller concentration in the South African economy regularly appears in the news. In recent years, the impact of industry concentration in South Africa has not been given the necessary attention it deserves. The purpose of this dissertation is to emphasise the important influence that the degree of seller, or industry concentration, has on the South African economy by focusing on the potential determinants of seller concentration. The South African manufacturing sector indicates evidence of highly concentrated industries, controlled by a few dominant firms, and is therefore the focal point of this study. In order to completely understand the extent of industry concentration in the South African manufacturing sector, it is necessary to investigate industry concentration level and trends, to estimate the possible determinants of industry concentration, and to provide policy implications. The literature on industry concentration, and other similar international studies conducted on this topic, serves as point of reference by providing guidance on how the study should be carried out on a South African front. The correct methodology used in this study to identify the determinants of seller concentration in South Africa is obtained from examining international studies on industry concentration from New Zealand, Australia, France and the United States of America. The industry data available for this study were derived from Statistics South Africa (StatsSA) reports from 2008 and 2011. In order to measure the degree of industry concentration, a specific concentration measure must be used. Numerous measures of industry concentration were examined in this dissertation, but special attention was given to the concentration ratio (CR) and the Herfindahl-Hirschman Index (HHI). The construct of the South African manufacturing industry data used in this study made the use of the widely accepted measure of industry concentration, namely the concentration ratio (CR), possible. The empirical analysis focused on the relationship between the dependent variable, the concentration ratio (CR), and various independent variables. The independent variables estimated are in accordance with the literature reviewed on the determinants of industry concentration, along with the international studies conducted on this topic. Therefore, a combination of the literature on the determinants of industry concentration and the various international studies examined was used to identify which independent variables should be estimated. However, the availability and construct of the South African manufacturing data also played a role in determining which independent variables could be estimated. The literature on industry concentration and the multiple studies examined suggested that the independent variables, or potential determinants of industry concentration, that should be estimated in this study are advertising, export intensity, import penetration, value added per worker and economies of scale. Throughout the literature review process, it became evident that advertising and industry concentration are closely related; therefore, an entire chapter was dedicated to analysing the relationship between industry concentration and advertising. The empirical analyses were conducted by estimating five different models for 2008, 2011, and 2008 to 2011 respectively. The 2008 to 2011 analysis allowed for trends in industry concentration to be observed. The results from the empirical analyses indicate that all of the independent variables estimated in this study are determinants of industry concentration in the South African manufacturing sector. However, in 2008, import penetration did not have a significant influence on industry concentration, but in 2011, it did. In the 2008 to 2011 analysis, value added per worker and advertising had a positive significant influence on industry concentration, which suggested that there is a trend between advertising intensity and industry concentration.