Analysis of Industrial Sector Competitiveness of Pakistan: An Application of Panzar-Rosse (PR-H) Statistic

Abstract

This study utilizes the Panzar-Rosse (1978) PR-H Statistics framework to examine the competitiveness of Pakistan's industrial sector. Leveraging data from the Pakistan Stock Exchange (PSX) covering the period from 2007 to 2020 and focusing on insights from the 200 largest listed companies, our study sheds light on the complex market dynamics and competitive forces at play in the sector. By applying the Panzar-Rosse PH Statistic, we aim to demonstrate the presence of a competitive market structure that helps mitigate monopolistic tendencies. Our analysis, while managing endogeneity and employing the Generalized Method of Moments, reveals that the industrial sector in Pakistan is characterized by significant market dynamics that influence business behavior and performance. Despite this, the results of the PR-H Statistics suggest a relatively competitive market environment prevailing in Pakistan's industrial sector. However, there are indications of non-competitive behaviors attributed to weak institutional quality and the overall economic conditions of the country. Additionally, tendencies of weak and imperfect market structures are prevalent, compounded by undocumented and informal economic activities. Through this investigation, we aim to deepen understanding of the competitive landscape in Pakistan's industrial sector and its implications for industrial agents. By highlighting the challenges posed by non-competitive behaviors and weak market structures, our study offers valuable insights into the broader economic ecosystem of Pakistan.