# IV. ENHANCING ANALYTICAL CAPABILITIES

Effective economic policy formulation and implementationi must be start with high quality and upto-date economic infomiation and analysis. Without a sound knowledge base about an economy's market structure and the deterninants of firms' behavior, it is virtually impossible to design competition and regulatory policies that will have their intended impacts; in fact under such circumstances it is quite possible that best intenitioned reforms could well create deleterious outcomes and worsen existing problems. Moreover, without such informnation, policy formnulation in other economic spheres-for example, in the area of macroeconomic reform, such as gauging the price and market impacts of foreign exchange liberalization--will be made more difficult and subject to errors.

_Needfor More Empirical Assessments of Competition._ Although improvements are underwayin particular within the Center for Economic Research, a quasi-Government think-tank partly funded by UNDP and TACIS--the existing database on the structure of Uzbekistan's industry is still rudimentary. While numerous analyses of particular commodity markets have been undertaken (as part of the monopoly registry process) relatively few major empirical studies of the systemic determinants of market power within key bottleneck sectors of the economy have been carried out.

_Cross-Se ctord Analysis._ In addition, cross-sectoral analyses that assess structural and behavioral linkages across industries and markets do not appear to have been undertaken: for example, how price distortions, production inefficiencies and bottlenecks in the inifrastructure monopoly sectors, such as electric power, affect business performance by electric power coDnsuming firms in the tradables sector, such as cotton ginning. Similarly there has been limited analysis of the competitive impacts of existing horizontal and vertical integration, and the extent to which curTent horizontal and vertical structures, especially in the 56 'associations" and holding group structures, engender economies of scale and scope. Without this integrative, economy-wide perspective, the formulation of competition and regulatory policies on a "general equilibrium" basis is very difficult and instead forces policy-makers to base decisions on only a partial view of the determinants of industrial performance in the economy.

_Statutory vs. Economic Definitions of Markets._ It also appears that the taxonomy of data that are collected and analyzed is determined more by statutory than economic criteria. For example, the data are usually assessed according to the 65%l35% legal classification of monopolies. Rather what is needed is analysis of data _to determine_ the economic boundaries of markets (and thus firms' market shares), based on questions of procluct substitutability and geographic lim its of total delivered product costs relative to demandl.

_Influence of Market Structure on Corporate Performance._ Equally important, there is a lack of analysis of how convenitional elements of industrial structure, such as seller concentration, barriers to entry, ownership structure, among other factors, influence the competitive conduct of firms. In this regard it would be important to know on a cross-sectional basis as well as over time, what gives rise to variations among Uzbekistan's firms in terms of price-cost margins and rates of return; product innovation and introduction of new processes; product ancl service quality; access to and disposition of domestic financing and earnings; incidence of foreign exchAige; and export performance.

The AMC and the Center for Economic Research recognize the deficiencies in the existing knowledge base ancl analytical capabilities. Accordingly they have begun to develop action plans to remedy the situation. Indeed the Center for Economic Research is currently establishing a new thematic team within the organization that will focus exclusively on anialysis of competition in the economy. Clearly, the knowledge-building agenda before the AMC amd the Center is big, and it will take time to implement. Against the backdrop of limited human and financial resources to undertake this effort, it is important that as the action plans are further refined priorilhies be set. The set of issues identified above 7