A Blessing in Disguise? Market Power and Growth with Financial Frictions

David Strauss () and Joachim Jungherr

No 998, Working Papers from Barcelona School of Economics

Abstract: Firm market power raises growth in the presence of financial frictions. The reason is that self financing becomes more effective if firm earnings are higher. We test this mechanism using Korean manufacturing data 1963-2003. We find that more concentrated sectors grow faster. This positive empirical relationship between concentration and growth gets weaker as credit becomes more abundant. Using a simple growth model, we study counterfactuals. The observed rise of concentration in Korea until the mid-1970s has increased manufacturing value added 1963-2003 on average by at least 0:6% per year. The effect of firm market power on worker welfare is ambiguous.

Keywords: growth; financial frictions; market power (search for similar items in EconPapers)
JEL-codes: L13 O11 O16 (search for similar items in EconPapers)
Date: 2017-10
New Economics Papers: this item is included in nep-com and nep-fdg
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Persistent link: https://EconPapers.repec.org/RePEc:bge:wpaper:998

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