Market Structure and Inter-industry Profit Differences in Taiwan

Abstract

A high degree of openness and labour-intensive production are the two main features of Taiwan's manufacturing sector. This study uses the export/sales ratio and the K/L ratio to divide the sector into two groups: (1) the export-oriented and domestic market-oriented industries, and (2) the capital-intensive and labour-intensive industries. The Chow test confirmed the two-regime hypothesis for both the groups, supporting the validity of our dualistic analysis. Using 1986 census data, the distribution of profit rates in the two groups are compared. The major determinants of inter-industry profit differences are the domestic sales ratio and the capital/output ratio; the other variables have either little impact or generate unsystematic effects.