Review of Industrial Organization 22: 103–119, 2003.
© 2003 Kluwer Academic Publishers. Printed in the Netherlands.
Industrial Concentration, Output, and Trade: An
Department of Economics, University of Calgary, 2500 University Dr. NW, Calgary, AB, Canada
Abstract. This paper explores the relationship between concentration, output and trade using theory
and empirical analysis of matched data on 82 manufacturing industries in seven countries. It ﬁnds
that the higher is domestic concentration in an industry compared to international concentration, the
lower is the domestic share of world output and the smaller are net exports. This relationship persists
even when industries with high levels of concentration are excluded.
Key words: Competitiveness, concentration, output, trade.
JEL Classiﬁcations: F12, L13.
Does industrial concentration matter for international trade and output? There are
two views of how industrial concentration might determine whether a country is
likely to be successful in trade. In the “national champion” approach, governments
can help develop internationally competitive industries by focusing resources in a
few large companies which then beneﬁt from economies of scale.
In the “compet-
itive” approach, ﬁrms only grow and become successful exporters because they are
faced by many competitors. In an inﬂuential book, Michael Porter (1990) argues
using case studies that creating a dominant domestic competitor rarely results in
international competitive advantage, and criticizes “counterproductive” leniency
towards mergers and alliances in developed nations. Which view is correct?
This paper uses cross-sectional data on manufacturing industries in seven de-
veloped countries to try to identify the impact of concentration on output and trade.
It ﬁnds that, conditioning for industry and country characteristics, the higher the
concentration in an industry within a country, the lower its share of world output
I thank Eugene Beaulieu, Herb Emery, Arthur Sweetman, and two anonymous referees for
helpful comments. For providing data for this project, I am indebted to Kate Matraves, Bruce Lyons,
Bruce Kogut, and Daniel Treﬂer.
Studies which support the national champion approach include Zysman and Tyson (1983) and
Jorde and Teece (1990).