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Why market structure matters for development

Geoff Riley

3rd August 2021

i really like this research article from VoxDev on global differences in cement prices as it brings Theme 3 micro and Theme 4 macro together.

Cement is one of the most widely used and necessary inputs into the construction industry for both advanced and lower-income countries. Yet only 5 per cent of cement produced is globally traded.

The research finds significant differences in prices for cement - which is essentially an homogenous product.

There are numerous reasons why prices might be higher in some countries than others including the relative absence of producers who have grown to a sufficient scale to be productively efficient and bring down their long run average cost.

The research finds that market structure is an important causal factor behind price differences.

Strong market power among cement manufacturers in many developing countries allows them to charge higher prices and earn increased supernormal profits.

"Certain cement firms use their market power to generate excessive profits. Second, these profits are an impediment to overall investment and growth in the broader economy."

And as the article makes clear, this has important implications for growth and development since cement is essential in some many of the infrastructure projects - from roads and bridges to new schools and hospitals - from which improvements in human development can flow.

Geoff Riley

Geoff Riley FRSA has been teaching Economics for over thirty years. He has over twenty years experience as Head of Economics at leading schools. He writes extensively and is a contributor and presenter on CPD conferences in the UK and overseas.

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