The Relationship Between Competition and Productivity in the Turkish Manufacturing Industry: A Firm-Level Analysis

This study aims to analyze the effect of competition on total factor productivity (TFP) for selected 77 companies operating in the manufacturing industry for the 2011-2019 period. The competitiveness of firms is calculated using the Lerner index. Total factor productivity is estimated based on the cost function using the stochastic frontier analysis (SFA) method. As a result of the estimation, the total factor productivity growth rate decreases rapidly after 2015 and becomes negative in 2018 and 2019. Although the average Lerner index, which shows the competitive power of the companies, is 35.06%, there is no significant change in the level of competition. Among the sectors, while the Basic Metal Industry is the lowest sector in terms of TFP growth rate; the sector with the highest TFP growth is the Chemicals, Petroleum Rubber and Plastic Products sector. On the other hand, while the most competitive sector is the Paper and Paper Products, Printing and Publishing, the sector with the least competition is the Non-Metallic Mineral Products Sub-sector. The findings of the study shows that the relationship between competition and total factor productivity is not linear. The estimated competition (1-Lerner index) threshold value for firms is 0.322. When competition is below the threshold, the effect of increased competition on total factor productivity is insignificant. When competition is above the threshold, the effect of increased competition on total factor productivity is positive and statistically significant.