Transcript Descriptive Analysis
Competition and Inflation in CESEE: A Sectoral Analysis
*
Reiner Martin (ECB) Julia Wörz (OeNB)
Dubrovnik, June 2011 *All views expressed are those of the author and do not necessarily represent the opinions of, and should not be attributed to, the European Central Bank or Oesterreichische Nationalbank.
Outline
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Introduction
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Descriptive Analysis
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Empirical Analysis
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Conclusions
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Introduction
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Focus of existing work on competition in CESEE tends to be on competition policy (often with a legal focus)…
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…or on the link between competition and (sectoral or economy-wide) growth.
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There are only few studies looking at (1) country- / sector-specific differences in competition and (2) the impact of competition on inflation.
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There is no cross-country study looking at the link between competition and inflation in CESEE countries.
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Introduction
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Analysis of competition based on firm-level Amadeus database
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Database has obvious caveats (but robustness checks with employment data suggest reasonably good coverage in most countries / sectors) .
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Data covers the period 1999 – 2007 (excluding the crisis period)
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Choice of countries and sectors determined by data availability and comparability with HICP components
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Introduction
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Study covers the 10 CESEE EU countries and Croatia.
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We look at 20 sectors in 4 groups:
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3 manufacturing sectors
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7 wholesale trade sectors
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7 retail trade sectors
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3 consumer services
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Some sectors (e.g. textiles, food & beverages) can be followed through the production chain.
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Descriptive Analysis
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Literature suggests various potentially suitable indicators for competition. ‘Profit’ and competition indicators frequently used.
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Choice of indicators in the paper restricted by data availability in Amadeus.
• •
Return on assets (RoA) selected as ‘main’ indicator for empirical analysis. Sales concentration descriptive analysis.
as additional indicator for
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Recent competition studies prefer profit over concentration measures.
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Descriptive Analysis
Return on Assets:
R T A S
PLBT T O AS
* 100
Profit and Loss before taxes over total assets (fixed and current) in %
Herfindahl index of sales concentration:
Herf
j N
1
s
2
j s j
a
/
j N
1
a
j …sales of firm j
Higher level
generally assumed to imply less competition
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Descriptive Analysis
The economic interpretation of indicators can be very difficult!
• • •
Return on assets: A priori: high RoA
less intense competition But: low or negative RoA may indicate predatory behavior of (some) market participants ‘Normal’ RoAs depend strongly on industry characteristics
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Concentration: A priori: low sales concentration firms and increase concentration
strong competition But: aggressive firm behavior may drive out less efficient
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Descriptive Analysis
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Concentration index + A priori unclear (competition likely to be relatively strong) Competition ↓ 0 + Return on assets Competition ↑ A priori unclear (competition likely to be relatively weak) -
Descriptive Analysis
H 0 8 H R 0 9 H H 1 2 H H 1 2 H R 0 6 H 0 8 H H 1 2 H H 1 2 H R 0 9 H H 1 2 H H 0 6 •
Distribution of RoA fairly concentrated across countries
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Estonia and Slovenia may be seen as exceptions
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Some sector-specific outliers
H R 0 1 H R 0 6 www.oenb.at
- 10 [email protected]
Descriptive Analysis
D is t r ib u t io n o f R e t u r n o n A s s e ts a c r o s s S e c to r s (1 9 9 9 - 2 0 0 7 )
R O PL EE S K H U R O R O •
Variation more pronounced across sectors than across countries
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A number of sectors appear to be outliers
H U H U S I S K S I PL www.oenb.at
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Descriptive Analysis
Return on Assets
12,00 10,00 8,00 6,00 4,00 2,00 0,00 1999 2000 2001 2002 2003 2004 Consumer Services Wholesale trade Retail Trade Manufacturing 2005 2006 2007 •
Trend increase in returns on assets over time (related to catching-up?)
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Strongest increase in wholesale and retail trade
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More moderate rise in manufacturing
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Consumer services in between other sectors
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Descriptive Analysis
Herfindahl Index of Concentration (Sales)
0,30 0,25 0,20 0,15 0,10 0,05 0,00 1999 2000 2001 2002 2003 2004 Consumer Services Wholesale trade Retail Trade Manufacturing 2005 2006 2007 www.oenb.at
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Sales concentration on a downward trend
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Consumer services characterised by highest levels and strongest decline in concentration
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Developments in other sectors much less pronounced.
Descriptive Analysis
Changes in Key Competition Indicators
Change in Sales Concentration
1.0
0.8
-0.2
-0.4
-0.6
0.6
0.4
0.2
0.0
H11 HR01 HR06 HH09 HH01 HH05 HH07 HR09 M01 HR05 HR12 HH12 H08 HH03 HR07 M06 HH06 M03 H04 -0.8
-0.6
-0.4
-0.2
0 0.2
0.4
Note: Sector-specific deviations from the average change in return on asstes and the concentration index between the periods 1999–2001 and 2005–2007; see table A2 for a description of sector codes used here.
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0.8
Change in Return on Assets
Descriptive Analysis
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On sectoral basis no clear pattern regarding the changes over time.
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Around half of the sectors are in the ‘twilight’ quadrants.
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Differences across sectors more pronounced than across countries. Sectors with likely decline in competition
Production of chemicals and pharmaceuticals Health (wholesale) Clothing and footwear (retail) Misc goods and services (retail)
Sectors with likely increase in competition
Production of food and beverages Freight transport Recreation and culture (retail) Restaurants and hotels Communication www.oenb.at
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Empirical Analysis
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Intensity of competition is expected to impact price developments over shorter horizons.
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Simple empirical approach to test this hypothesis is including competition variable (RoA) in sectoral inflation estimations.
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Other variables include money growth, output gap, lagged inflation, oil prices and sector-specific cost variables.
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Period and country coverage in line with descriptive analysis above (11 countries, 20 sectors).
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Empirical Analysis
Sectors where RoA is significant (without controlling for openness) +
production of textiles housing, utilities freight transport retail of food furnishing (retail and wholesale) recreation and culture (wholesale)
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textiles&Clothing (retail)
Sectors where RoA is significant (controlling for openness) +
production of textiles freight transport retail of food furnishing (wholesale) recreation and culture (wholesale)
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textiles&Clothing (retail and wholesale) - 17 [email protected]
Empirical Analysis
lagged inflation output gap M3 Oil price Industrial sentiment industry size material costs staff costs return on assets constant Production: Textiles, clothing, leather Housing, water, gas, other fuels Freight transport
0.922
-0.061
0.035
0.008
0.111
0.987
0.478
-1.158
1.208
-8.962
0.415
0.731
-0.017
0.046
-0.348
-4.937
2.414
3.715
2.282
-8.043
0.042
-0.553
0.062
0.127
-0.073
-0.561
0.242
-0.556
2.891
5.367
Retail: Food and non alcoholic beverages Retail: Clothing and footwear Wholesale: Furnishing, household equipment, maintenance of house Retail: Furnishing, household equipment, maintenance of house Wholesale: Recreation and culture
0.357
-0.640
0.095
0.183
0.188
-11.146
0.308
8.773
2.081
48.041
0.754
0.113
0.079
0.030
0.224
-3.146
0.229
2.710
-1.939
10.632
1.024
-0.005
0.041
0.061
-0.079
2.746
-0.630
-1.377
0.480
-20.231
1.024
-0.108
0.046
0.046
-0.069
-1.390
-0.074
2.361
1.400
-9.041
0.486
-0.191
0.111
0.004
-0.001
-0.017
0.465
-1.116
1.483
2.221
No. of obs.
53 54 60 46 50 59 56 54 www.oenb.at
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Empirical Analysis
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RoA significant determinant for inflation in 8 (7) out of 20 sectors.
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Except for the retail (and wholesale) part of the textiles & clothing sector the coefficients have the expected sign.
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Significant sectors belong to all sector ‘types’ - but more so wholesale sectors
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The sectors ‘food & beverages retail’ as well as ‘housing & utilities’ warrant particular attention from an inflation perspective.
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Conclusions
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Research on the intensity of competition in the CESEE region still rather limited – largely due to lack of data.
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This limits also the scope for analyses of the link between competition and price developments.
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Results suggest, however, that the link matters – notably at a time of resurging inflation in the region.
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Besides refining the approach pursued in this paper, sector-specific studies may be a good way forward.
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Thank you for your attention!
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Descriptive Analysis
D is t r ib u t io n o f S a le s C o n c e n tr a tio n a c r o s s C o u n t r ie s ( 1 9 9 9 -2 0 0 7 )
H 0 8 H 0 8 H 0 8 H 0 8 H H 0 9 H 0 8 H 0 4 H R 0 5 R O
D is tr ib u tio n o f S a le s C o n c e n tr a tio n a c r o s s S e c to r s (1 9 9 9 -2 0 0 7 )
PL S I M 0 6 H R 0 1 M 0 1 L T H U R O www.oenb.at
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Details of sectoral breakdown
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Economic activity Consumer services Wholesale trade Retail trade Group H Industrial sector H04 H H HH HH HH HH HH HH HH HR HR H08 H11 HH01 HH03 HH05 HH06 HH07 HH09 HH12 HR01 HR03 Description Including NACE, Revision 2 codes Housing, water, electricity, gas, other fuels Communication Restaurants and hotels Wholesale: Food and non-alcoholic beverages Wholesale: Clothing and footwear Wholesale: Furnishing, household equipment, routine maintenance of house Wholesale: Health Freight transport Wholesale: Recreation and culture Wholesale: Miscellaneous goods and services Retail: Food and non-alcoholic beverages Retail: Clothing and footwear D, E 4742; 53; 61 I Items of 46 Items of 46 Items of 46 4646 Items of 45, 49–51 Items of 46 Items of 46 Items of 47 Items of 47; 9523; 9601 HR HR HR HR HR05 HR06 HR07 HR09 Retail: Furnishing, household equipment, routine maintenance of house Retail: Health Passenger transport Retail: Recreation and culture Items of 47; 9524; 9529 4773–4774; 86 Items of 45, 49–51 Items of 47; 75; 79; R; 951; 9521 HR HR12 Manufacturing M M M M01 M03 M06 Retail: Miscellaneous goods and services Items of 47; 649; 651; 653; 9525; 96 w/o 9601 Production: Food and non-alcoholic beverages 10; 1107 Production: Textiles, clothing, leather 13–15 Chemicals, pharmaceuticals, rubber and plastics 20–22 - 23 [email protected]