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Market Power influence on the Suboptimal levels of Investment: Evidence from Ecuador

Mary Armijos and Gabriela Cuenca

X-pedientes_Economicos, 2021, vol. 5, issue 12, 6-16

Abstract: The levels of investment in Ecuador have been low, while the levels of market power have increased in certain sectors. The objective of our study is to evaluate the social optimal levels of investment of the Ecuadorian firms and their relationship with market power, through the comparison of profitability rates and concentration indices to examine if they are consistent with the expected behavior of a competitive market. We usethe balance sheets reported by the firms to the Superintendencia de Compañías, Valores y Seguros(SCVS), and the information of macroeconomic variables from the Central Bank. With this panel data we estimateda fixed effects model considering as dependent variables theprofitability (return on assets, ROA) and investment, and as mainindependent variable the level of market power (Herfindahl-HirschmanIndex).The results suggest that the level of concentration has a positive relation with the profitability and a negative relation with corporate investment.

Date: 2021
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Handle: RePEc:xpe:journl:v:5:y:2021:i:12:p:6-16