market structure and buyer characteristics in canadian imports of manufactures from low-wage...

Market Structure and Buyer Characteristics in Canadian Imports of Manufactures from Low-Wage CountriesAuthor(s): G.K. HelleinerSource: The Canadian Journal of Economics / Revue canadienne d'Economique, Vol. 11, No. 2(May, 1978), pp. 324-333Published by: Wiley on behalf of the Canadian Economics AssociationStable URL: http://www.jstor.org/stable/134353 .

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324 / G.K. Helleiner

Watts, H.W. (1958) 'Long-run expectations and consumer saving.' In T.F. Dernberg, R.N. Rosett, H.W. Watts, eds, Studies in Household Economic Behaviour (New Haven: Yale University Press)

Yaari, M.E. (1964) 'On the consumer's lifetime allocation process.' International Economic Review 5, 304-17

Yaari, M.E. (1965) 'Uncertain lifetime, life insurance, and the theory of the consumer.' Review of Economic Studies 32, 137-50

Market structure and buyer characteristics in Canadian imports of manufactures from low-wage countries

G.K. HELLEINER / University of Toronto

Empirical research in the field of industrial organization has been oriented much more towards the measurement and effects of seller concentration than towards the issues surrounding buyer concentration.1 A similar bias may be found in the traditional literature of international trade. It too has been far more concerned with the potential for monopolistic pricing than with the possibility of monopsony - in this case no doubt because of the usually greater degree of diversification in a country's import bill than in that of its exports.

It is well known that the equilibrium levels of trade, output, and prices of products in an importing nation are influenced not only by the presence of trade barriers but also by market structure in importing and import-competing pro- duction (Bhagwati, 1965; McCulloch, 1973). Where there are preferential tariffs offered by the importing nation to particular foreign countries, e.g. the general preferential tariff for less-developed countries (Murray, 1977), and where bilateral trade volume is determined by administrative arrangements, e.g. import quotas or voluntary export restraints (Bergsten, 1975), the distri- bution of the gains from trade can be indeterminate within a fairly wide range and depends upon market structure. Canadian imports of manufactures from low-wage countries, which are characterized by such preferential tariff and administrative arrangements, are those for which more information on market structure is therefore most clearly required. This note reports on an. attempt to assemble, with the help of Statistics Canada, some of the relevant data and to conduct preliminary analysis upon them. While the results are less than perfect, they may be useful to others contemplating related research in this area.

While the names of importing firms are recorded in customs documents, This research has been supported by the Canada Council and the International Development Research Centre. Jagdish Bhagwati, Hans Singer, and the referees and editorial staff of this JOURNAL made helpful comments on an earlier draft. Neither of these institutions nor any of these people, to whom I am most grateful, are to be implicated in any way in the present paper. I am also grateful to Statistics Canada for its co-operation and to Robert Burke for research assistance.

1 For a recent exception, however, see Lustgarten, 1975.

Canadian Journal of Economics/Revue canadienne d'Economique, XI, no. 2 May/mai 1978. Printed in Canada/Imprim6 au Canada.

0008-4080/78/0000-0324 $01.50/? 1978 Canadian Economics Association



Shorter articles and comments / 325

they cannot be revealed by the statistics authorities. By the device of having the authorities assign code designations to these firms, however, one can derive estimates of the degree of buyer concentration and the importance of different types of firms in Canadian importing. A sample of thirty-five major classes of manufactured imports from low-wage countries was selected for study. Apart from the obvious requirement of choosing products which are important in the Canadian import bill, an attempt was made to achieve representativeness with respect to such broad categories as: raw material processing, textiles, clothing, footwear, and electrical engineering products. Since the quantity of data would otherwise have been unmanageable a sample month was selected (September 1974) which, on the basis of rough inspection of seasonal variations, seemed 'representative.' Volume and value data were then collected from customs documents for that month for every Canadian import transaction in the thirty- five selected products where the country of origin was a low-wage country (defined broadly to include some low-wage countries of eastern and southern Europe). The total number of transactions analysed was 1237, and they involved imports from thirty-two countries (including seven in eastern and southern Europe). The total value of the trade in question in September 1974 was nearly $16 1/2 millions.

Data for a single month may seriously misspecify the degree of market concentration, especially if imports tend to be 'bunched' at particular periods (as they are more likely to be in smaller countries like Canada than for instance in the United States). In those instances where buying firms differ from one another with respect to the month or season in which they typically do their importing they may be quite misleading. If the sample month, for example, is the month in which one or two major buyers happen to have cofncentrated their year's purchasing, while a dozen or so other buyers of equal importance have done theirs during other parts of the year, measured concentration will be overstated. Conversely, if there are a few dominant buying firms which happen to do the bulk of their importing in months other than that for which the observations were collected, measured concentration will be understated. While there are no a priori grounds for expecting the bias to run one way or the other, the possibility of overstatement seems more likely in the Canadian case. Clearly, there can be similar misspecifications of the relative importance of different kinds of importing firms.

Table 1 summarizes the information on market concentration which results from this exercise. It can be seen immediately that the extent of buyer concentration in the Canadian import trade in manufactures from low-wage sources varies greatly from commodity to commodity. In some there appears to be a very high degree of buyer concentration. In each of unfinished mahogany plywood, cotton denims, and semiconductors, for example, one firm accounted for over 80 per cent of total imports. The top four firms accounted for par- ticularly high shares of total imports of coconut oil, many textile products, certain types of footwear, automobile radios, semiconductors, sewing machines,



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Christmas tree lighting sets, and toothbrushes. Concentration is least in clothing, simple footwear, and transistor radios. From the standpoint of the low- wage countries, comfort may be found in the fact that buyer concentration seems relatively low in the clothing sector and in the simple footwear items which have been most subject to non-tariff trade barriers in Canada. With a few notable exceptions, it also seems possible to say that products which are imported for sale direct to final consumers tend to be less concentrated than those which are intermediate products; baler twine, clothing, cheap footwear, and transistor radios are all on the lower end of the concentration scale.

Where market concentration appears to exist, one must seek explanations. Do barriers to entry render it difficult for new firms to begin importing, and, if so, what are they? If not, the observed concentration may simply reflect a temporary situation of disequilibrium during which competition is increasing rather than an enduring market structure 'problem.' Some barriers to entry certainly exist. There are undoubtedly scale economies in importing which derive from indivisibilities in transport, warehousing, and buying functions and from the opportunity for risk-spreading and improved access to credit which comes with size. (Canadian importers frequently overcome some of the disadvantages of their small size by 'doubling up' in their use of buyers and/or joining in larger-scale buying operations undertaken by us parent firms or affiliates.) There are also likely to be difficulties for new entrants to the trade created by longstanding business ties enjoyed by 'established' firms, by the need for wide-ranging and efficient information networks which take time to build, and even, in some cases, by the existence of restrictive trade practices. While the point cannot yet be proven conclusively, there are ample grounds for believing that there are important barriers to entry in many types of importing and that the observed variation in Canadian importer concentration reflects the continuing fact of intercommodity differences in these barriers. This is clearly an area which deserves more research.

Table 2 shows the types of Canadian firms engaged in importing manufactures from low-wage countries. In the discussion of the prospects for future manufacturing for export in the less-developed countries there has been some argument about the relative importance of transnational manufacturing enter- prises and major trading firms, both of which have been active in its development. According to one view the trading firms have so far been more important than others in the development of the trade in the Far East (Hone, 1974). The evidence from the Canadian customs data does not, however, support this as a general proposition. While only 37 per cent of Canadian imports of the thirty-five selected products from Hong Kong came through manufacturing firms, the latter accounted for the majority of these imports from other Far Eastern sources: 83 per cent in the case of Singapore, 63 per cent in mainland China, 62 per cent in Taiwan, and 64 per cent in South Korea.2 For the entire

2 These country-level data are not reported in Table 1. They are available from the author upon request.




sample of thirty-five manufactured imports from less-developed countries, 57.5 per cent were imported by manufacturing firms.

Needless to say, this proportion varies greatly as among products and countries. It is especially low in the cases of cotton yarn, some clothing and footwear products, and toothbrushes. Of Canadian imports from less-developed countries 100 per cent were undertaken by manufacturing firms in the cases of acrylic yarns, rubber soles and shoe bottoms, and transistor-type semiconductors (all intermediate products).

These micro-level data on the degree of importer market concentration and the type of importer (and the size of shipments) permit the testing of hypotheses with respect to the influence of these variables upon import prices (actually unit values) at the commodity level. A series of regression equations were therefore estimated for this purpose.3

One might hypothesize that the greater the market share of any particular importing firm the lower will be the price it pays for a particular type of import. (Notice that the hypothesis being tested is not whether the degree of market concentration affects import prices on a cross-commodity basis - which is no doubt a more interesting proposition but one which is not testable with these data - but merely whether those with the greatest market shares obtain the best prices within commodity categories.) One might also hypothesize that there are systematic differences in prices paid for particular types of imports which are related to the type of importer; manufacturing firms, for example, might be expected to engage more in intrafirm importing than other importers and so avail themselves of transfer-price manipulation in their favour, which in this context is most likely to involve lower import prices.4 The influence of exchange controls in the exporting countries upon import invoicing can also be tested. One would predict that the more stringent the controls the greater the incentive to under-invoice shipments and thus evade the control authorities in the exporting country. As a proxy for this factor we employed the extent of overvaluation of the exporting country's currency as measured by the percentage difference of the market exchange rate from the official exchange rate.

The problems involved in the use of unit value data as approximations to observations on prices are well known (Kravis and Lipsey, 1971, 4). The quality of the unit may vary from transaction to transaction; declared values may not truly reflect the actual values paid because of firms' efforts to evade government tax or other policies; the data may be imperfect in the first place. Indeed it is not uncommon to find wide variations in measured unit values for the same commodity when imported by the same firm from the same country within quite a short period of time, quite apart from the variations between firms, between source countries, and between time periods. The Canadian data

3 For similar attempts to explain trade unit values through regression analysis see Hufbauer and O'Neill, 1972; Yeats, mimeo.

4 This presumption might not, however, apply to imports from some source countries in which corporate tax rates are unusually low, such as Hong Kong.



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are as riddled with such mysteries and problems as any other countries' data. These are nevertheless the best data there are.

For each of the thirty-five commodities analysed, price relatives (actually unit value relatives) were calculated showing the import price for each importing firm PRF and for each import shipment PRS relative to the mean import price for the commodity. In the case of some commodities the number of observations was small, and these were dropped from the analysis. In order to obtain as many general tests as possible the data were also pooled across commodity classifications, providing 575 observations on PRF and 649 on PRS.

In the regression equations which were estimated - both on a pooled and an individual commodity basis - market shares, shipment size, dummy variables for types of importers, and currency overvaluation proved exceedingly limited in their capacity to 'explain' variations in PRF and PRS.5 The r2s were very low (0.01 in the pooled versions), and the only statistically significant independent variable was the dummy for manufacturing firm importers indi- cating that such firms paid lower unit values than other importers in the total sample; in the case of one commodity, even this limited result was reversed: manufacturing firms importing utility footwear fabric tops paid statistically significantly higher unit values than others.

Thus, while it has been possible to shed some light on the degree of buyer concentration and the makeup of the relevant importing community through direct resort to customs documents, it has not been possible to relate these to differences in import unit values. Difficulties in establishing propositions of this type empirically are not unusual in the field of industrial organization.

REF ERENCES

Bergsten, C. Fred (1975) 'On the non-equivalence of import quotas and voluntary export restraints.' In C.F. Bergsten, ed., Toward a New World Trade Policy: The Maidenhead Papers (Lexington)

Bhagwati, J.N. (1965) 'On the equivalence of tariffs and quotas.' In R.E. Baldwin et al., Trade, Growth and the Balance of Payments, Essays in Honor of Gottfried Haberler (Chicago: Rand McNally) 53-67

Hone, Angus (1974) 'Multinational corporations and multinational buying groups: their impact on the growth of Asia's exports of manufactures - myths and realities.' World Development 2, 145-9

Hufbauer, G.C. and J.P. O'Neill (1972) 'Unit values of us machinery exports.' Journal of International Economics 2, 265-75

Kravis, I.B. and R.E. Lipsey (1971) Price Competitiveness in World Trade (New York: National Bureau of Economic Research, Columbia University Press)

Lustgarten, Steven H. (1975) 'The impact of buyer concentration in manufacturing industries.' Review of Economics and Statistics 47, 125-32

McCulloch, Rachel (1973) 'When are a tariff and a quota equivalent?' This JOURNAL

6,503-11

5 The detailed results of these regressions are available fromn the author upon request.




Murray, Tracy (1977) Trade Preferences for Developing Countries (London: Macmillan)

Yeats, A.J. (mimeo) 'Monopoly power, barriers to competition and thle pattern of price differentials in international trade.'

L'importance du chomage saisonnier dans les disparites de chomage au Canada

RICHARD BEAUDRY / Conseil economique du Canada

INTRODUCTION

La litterature canadienne sur les variations saisonnieres est relativement restreinte et se concentre essentiellement autour de deux themes: le chomage saisonnier chez les etudiants et l'instabilite du secteur de la construction.' Ce n'est qu'en de rares occasions qu'on a touche au probleme de l'influence des saisons sur 1'ensemble de I'activite economique (par ex.: Denton et Ostry, 1964; Smith, 1965; Hardy, 1972; Kaliski, 1976) et bien que, dans certaines etudes, I'analyse ait egalement porte sur l'aspect geographique du phenomene, celles de Lazar (1977) et de Thirsk (1973) semblent les seules qui aient accorde quelque importance 'a l'impact qu'il pouvait avoir sur les disparites interregionales de cho6mage.2 Le present article vient approfondir l'analyse deja amorcee par ces deux auteurs 'a cet egard.3

Le texte se divise en deux parties. Apres une breve description de l'evolution des taux de chomage saisonnier estimes pour la periode 1953-75 et pour les cinq regions canadiennes, la premiere presente une evaluation de la proportion des ecarts interregionaux de chomage qui peut etre imputee au fait que les facteurs saisonniers connaissent sur l'activite economique des effets differencies d'une region a l'autre. La seconde tente de determiner le role que la specialisa- tion de certaines regions dans des activites reconnues pour leurs fortes variations saisonnieres peut jouer sur l'ampleur de ces ecarts; a cette fin, des

Je tiens a remercier MM. Jean-Michel Cousineau et Neil Swan, du Conseil 6conomique du Canada, pour leurs commentaires et suggestions pertinentes a l'endroit d'une premiere version de ce texte. Je demeure, toutefois, le seul responsable des erreurs eventuelles. Ce texte n'engage en rien la responsabilite du Conseil economique du Canada.

1 On trouvera une liste des publications sur ces deux themes dans Dawson, Denton, Feaver et Robb (1975).

2 Ces deux auteurs ont tente d'expliquer les ecarts interregionaux de chomage a partir de diverses hypotheses dont celles des differences interregionales dans l'amplitude des variations saisonnieres. Lazar conclut que le phenomene saisonnier est l'un des deux principaux agents de ces ecarts, l'autre etant des differences dans le taux de roulement. Thirsk y a vu, pour sa part, un facteur d'explication sans toutefois le retenir comme un element de premier ordre.

3 On retrouvera certains des resultats presentes ici dans Conseil economique du Canada (1977).

Canadian Journal of Economics/Revue canadienne d'Economique, XI, no. 2 May/mai 1978. Printed in Canada/Imprim6 au Canada.

0008-4085/78/0000-0333 $01.50/(?)1978 Canadian Economics Association



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