Trade Policy Incentives, Market Structure and Productivity

Trade policy incentives are drivers of within-sector productivity growth and rapid industrial transformation in many developing countries. In many African countries, the use of tariffs, trade prohibitions and a package of fiscal policy incentives are therefore components of industrialisation and backward integration programmes to accelerate the performance of priority sectors. However, the effectiveness of these policy instruments within specific industries, and the transmission mechanism of policy incentives to productivity has not been adequately explored in the literature. By focusing on oligopolistic market structure of the cement industry in Nigeria, this paper analysed the relative impact of trade policy incentives and market structure on the within-sector productivity. Using the autoregressive distributed lag model with structural breaks, the study finds that producer concentration ratio is the most significant driver of productivity. While the trade policy incentive indexed by effective rate of protection (ERP), and financing subsidies also impact productivity improvements, the magnitudes are significantly lower. The overwhelming significance of market structure nuance earlier research studies and provide new insights into the nexus between trade incentives and productivity in an oligopolistic industry.