Competition Effects of Import Discipline in Korea
journal contributionposted on 06.06.2017, 02:42 authored by Min, Byung S.
Whether an increase in foreign competition, in an imperfectly competitive market structure, really provides an additional avenue of enforcement of more competitive market behaviour and increases the efficiency of resource allocation provides an important policy implication for competition policy. This paper, using the two-stage least-square method based on 77 KSIC 4-digit level of Korean manufacturing data, provides evidence that the import discipline hypothesis is applicable in a small open developing economy. In particular, the constraint by foreign competition on domestic firms' monopoly power will be greater, the greater the liberalisation of trade in the Korean manufecturing. Meanwhile, the paper also investigates economic factors that affected industry concentration. These results imply that an increase of foreign competition is essential to implement competition policy, particularly in a highly concentrated industry. The other iniplication for public policy is that financial subsidies for selected industries and firms as a development policy accelerate concentration of market structure and, coupled with protection, distort efficiency in resource allocation.