# IV. ENHANCING ANALYTICAL CAPABILITIES

Effective economic policy formulation and implementation must be start with high quality and upto-date economic information and analysis. Without a souncl knowledge base about an economy's market structure and the determinants of finms' 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 intentioned reforms could well create deleterious outcomes and worsen existing problems. Moreover, wvithout such information, policy formulation 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 bezn carried out.

_Cross-SectorairAntalysis._ 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, prodluction i:nefficiencies and bottlenecks in the infrastructure monopoly sectors, such as electric power, affect business performance by electric power consuming 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 current horizontal and vertical structures, especially in the 56 "associations" and holding group structlres, engender economies of scale and scope. Without this integrative, economy-wide perspective, the formullation 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 indusitrial 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 product substitutability and geographic limits of total delivered product costs relative to demand, _Influence of Market Structure on Corporate Performance._ Equally important, there is a lack of analysis of how conventional 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 irmportant to know on a cross-sectional basis as well as over time, what gives rise to variations amon,g Uzbekistan's firms in terms of price-cost margins and rates of return; product innovation and introduction of new processes; product and service quality; access to and disposition of domestic financing and earnings; incidence of foreign exchange; and export performance.

The AMC and t]he Center for Economic Research recognize the deficiencies in the existing knowledge base and 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 analysis of competition in the economy. Clearly, the knowledge-building agenda before the AMC and 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 priorities be set. The set of issues identified above 7