market share of Suharto family firms and the profit elasticity in 1995, but this interaction is only significant at the 10% level.<sup>21</sup> Turning to the impact of Suharto’s fall, results for these individual indicators are mostly insignificant but consistent with a procompetitive impact of Suharto’s fall. Industries in which Suharto family firms had more market power during his tenure have significantly higher entry rates (at the 10% level) post regime change, with the exception of 2005, 2006 and 2007. The positive impact on entry is partially due to choosing 1996 as the base year given that entry rates were particularly low in Suharto dominated industries in 1995 and 1996. Price-costs margins also decrease more in industries where Suharto family firms had been important relative to industries in which they were not, with the difference with the latter group being significant at the 10% level from 2006 onwards. Regime change also appears to reduce, though not significantly so, the profit elasticity, the market share of the four largest firms and prices in industries where Suharto family firms had been important relative to industries in which they were either not present or not important. However, the Herfindahl index of concentration is rising more rapidly in industries in which Suharto family firms had been important whereas the number of firms seems to fall more rapidly in such industries, but these effects are not statistically significant either.

The evolution of the aggregate competition indicator is presented in Figure 2, clearly points to significant pro-competitive impacts of Suharto’s fall; industries in which Suharto family firms had been important experienced significantly faster improvements in competition after his fall. A 10 percentage points increase in the market share of Suharto family firms is associated with a 0.40 increase in the competition index in 2000 and a 0.35 increase in 2001. The standard deviation of the competition index is 3.92 so these increases amount to roughly a 0.1 standard deviation increase in the competition index. These positive pro-competitive effects fade somewhat over time but rise again between 2006 and 2009.<sup>22</sup>

> 21 The point estimates on individual competition indicators, however, are broadly suggestive of entry rates (column 1), the number of firms (column 7) and prices falling somewhat faster in industries where firms owned by the Suharto family had greater market shares. By contrast, price costs margins (column 3), the Hirschman-Herfindahl index of concentration (column 5) and the market share of the 4 largest firms (column 6) seemed to be rising somewhat faster in these industries. This helps explain why point estimates from regressions in which the summary competition indicator – the competition index Z – is the dependent variable (column 9) are suggestive of deteriorating competition in industries in which connected firms had higher market share during the Suharto era, though none of the individual coefficients is statistically significant.

22 These results could also in part be driven by the increase in sample coverage in 2006 which is a census year; every 10 years the Indonesian bureau of statistics (BPS) conducts an economic census, which typically leads to an improvement in coverage of the manufacturing survey.

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