Product concentration and diversification indices of exports and imports, annual. In spain, the spanish central bank bases its surcharge proposal for sectorial concentration on the herfindahl hirschman index hhi. Hhi panel in long format statalist the stata forum. To our knowledge, this item is not available for download. Herfindahl hirschmann index calculation with 2 variables statalist. Say there are 4 firms with market share of 10%, 20% 30% and 40% then hhi 0. Could any one tell me how can i implement the herfindahl index in stata in this. The hirschmann index is sometimes called the hirschmann herfindahl index hhi, and is used in other contexts see the sectoral version later in this volume. Herfindahlhirschman index calculation in eviews post by emelia67 wed apr 02, 2014 11. This study performs an analysis of the concentration or diversification of the export structure of the andean community member countries, for which the calculation of the herfindahl hirschmann index hhi covering the period 20002015 was used as methodology. It is often used to evaluate potential mergers for antitrust concerns. Herfindahl hirschman index or hhi score refers to a measure of market concentration and is an indicator of the amount of competition in a particular industry. Development of competition indicators in the norwegian. The purpose of this text is to describe a procedure that can be used to construct a herfindahl hirschman index of market.
For simplicity, it can be interpreted as a measure of competition or concentration. Institute of health and society, department of health management. Hi i need to calcualte whats called a herfindahl index. This meaures how concentrated the ownership of a company is. Dynamics of the hirschman herfindahl index under new market entries. I am using the panel data where i have 10 years of time, 50. Actually, i didnt find any helping hints if i can use this long format or if i have to reshape it to the wide format.
Windows users should not attempt to download these files with a web browser. The herfindahl hirschman index of the automobile industry in the u. Herfindahl index of fractionalization disambiguation page needed. On the basis of european union commission guidelines and hhi values, the given industry can be characterized as unconcentrated, moderately concentrated or concentrated. Development of competition indicators in the norwegian general practice. The herfindahl hirschman index hhi is a measure of the competition between firms and related industries. Herfindahlhirschman index hhi, also called hh index, in economics and finance, a measure of the competitiveness of an industry in terms of the market concentration of its participants. Businesszeal will tell you how to calculate the herfindahlhirschman index hhi. Concentration ratios and the herfindahlhirshman index.
And if i use the command from stata helpfunction in the existing format, stata produces a new hhivariable for every var 1 to var20. How to calculate the herfindahlhirschman index hhi. The herfindahlhirschman index hhi is a common measure of market concentration that is used to determine market competitiveness. Brown, assistant professor of strategic management at penn state university harrisburg, explains how to calculate a herfindahl index. The cr4 index and the interval estimation of the herfindahlhirschman index. Interval estimation of the herfindahlhirschman index under. Sep, 2019 a companys market share is its percentage of total sales within a market or industry.
This statistic shows the herfindahl index hi for credit institutions in the benelux countries belgium, luxembourg and the netherlands from 20 to 2018. It is calculated by squaring the market share of each firm competing in a market and then summing the. This module should be installed from within stata by typing ssc install hhi. Herfindahl hirschmann index calculation with 2 variables. Department of justice, the federal trade commission, and state attorneys general have used the herfindahl hirschman index hhi to measure market concentration for purposes of antitrust enforcement. Why do we square the market shares in the herfindahl index. Herfindahlhirschman index financial definition of herfindahl. Hirschman herfindahl index is a measure of the dispersion of trade value across an exporters partners. The herfindahl hirschman index and occupational concentration by industry. Obtaining correct inference from within strata att estimation with psmatch2next by date. The concentration of market power is typically measured by the hirschman herfindahl index hhi. Herfindahlhirschman index definition, formula how to.
Nov 21, 2018 government and industry analysts evaluate the level of competition in an industry using the herfindahl index. What id like to compute is hhi herfindahl index for every company id in each year. The herfindahl hirschman index hhi is a widely used measure of market concentration. Feb 19, 2020 the herfindahl hirschman index hhi for manufacturing industries only. Hhi can be used to quantify market concentration which helps close in. This topic looks at two measures of market concentration namely the concentration ratio and the herfindahl hirschman index hhi. A country with trade export or import that is concentrated in a very few markets will have an index value close to 1. The paper is given over to a sensitivity analysis of. The hhi is calculated by squaring the market share of each firm competing in the market and then summing the resulting numbers. The herfindahl index is a measure of the size of firms in relation to the industry and an indicator of the amount of competition among them.
Stata module to generate herfindahlhirschman index. Correlation and concordance between the cr 4 index and the. In financial risk applications, concentration is the opposite of diversification. Herfindahl hirschman and entropy t develop a stata command for markets whose composition can vary over time t application to italian newspapers markets at provincial level. Why should i use hhi the herfindahl hirschman index hhi is a widely used measure of concentration in a variety of fields including, business, economics, political science, finance, and others. What is the difference between herfindahl index and the. The minimum index value is of course close to zero assuming a perfect competitive market.
Why should i use hhi the herfindahl hirschman index hhi is a widely used measure of concentration in a variety of fields including, business, economics, political science. The study selects a sample of 250 randomly selected firms whose common shares were traded on tehran stock exchange. However, he is mainly known as the inventor of a concentration index the herfindahl index which he proposed in his 1950 doctoral dissertation on the steel industry while at columbia university. Pdf dynamics of the hirschmanherfindahl index under new. Though simple to calculate summed squared market shares of firmsactors in a single marketspace, calculation of the hhi can get onerous, especially as the number of firmsactors increases and the. The module supports multiple variables and group ids and allows user to export output in table format csv comma delimited. Stata module to compute herfindahl index, statistical software components s457512, boston college. Similarly, a country with a perfectly diversified trade portfolio will have an index close to zero. If all or most of your risk is in one area, it is concentrated. Lian yujun additional contact information lian yujun.
In this regard, there are two significant types of concentration ratios that are utilized at present. If you have the appropriate software installed, you can download article citation data to the citation manager of your choice. This is a mathematical formula used to assess the concentration of firms in a particular industry or market. As part of this, i would like to calculate the herfindahl hirschman index for the following scenario. In this paper we show that hhi treats all sectors as equally risky and propose an alternative index ci in which sectors are weighted according to risk. A new package hhi for quick calculation of herfindahl. Hhindex a new stata command for market concentration indexes orietta dessy university of milan t focus on cardinal market concentration indexes. The herfindahl index also known as herfindahl hirschman index, hhi, or sometimes hhiscore is a measure of the size of firms in relation to the industry and an indicator of the amount of competition among them. It is often used in econometrics to measure the market share of companies subgroup in relation to an industry group. Stata module to compute herfindahl index ideasrepec. This will allow me to get the herfindahl hirschman index by importer for each item. The cr4 index and the interval estimation of the herfindahl. For example, in 2018, anheuserbusch inbev held about 41% of the u.
The herfindahl hirschman index, federal reserve bulletin, board of governors of the federal reserve system u. Herfindahlhirschman index hhi definition investopedia. Jul 31, 2018 the term hhi means the herfindahlhirschman index, a commonly accepted measure of market concentration. For example, suppose i have a firm with 10 shareholders, each holding the following percentage the total usually adds up to less than 100% as some are missing. The herfindahl hirschman index hhi and the fourfirm concentration ratio cr 4 are the leading indicators for market concentration. For your information, there is another concentration measure called the lerner index, although the lerner index is a snapshot of the intensity of competition. Department of justice evaluate whether a merger might create a nearmonopoly. The herfindahlhirschman index is a measure of the size of subgroups in relation to its containing group. How to calculate the herfindahlhirschman index bizfluent. Mar 20, 2016 it is calculated by summing the square of individual firms market share. Stata module to generate herfindahlhirschman index hhi variables. An index that identifies the level of competition in a given market and helps the u. The herfindahl hirschman index hhi is a widely used measure of concentration in a variety of fields including, business, economics, political science, finance, and many others. Herfindahlhirschman and entropy t develop a stata command for markets.
The hhi is calculated by squaring the market share of each firm in the industry and summing the result. A concentration measure taking the consumers point of view show all authors. The herfindahl hirschman not hirschmann measure is named for simpson the same simpson as is honoured with the name simpsons paradox in that program output, partly to remind economists that they didnt invent everything and partly because it was invented by gini. Herfindahl hirschman index hhi, also called hh index, in economics and finance, a measure of the competitiveness of an industry in terms of the market concentration of its participants. Hirschman, it is an economic concept widely applied in competition law, antitrust and also technology management. In the simulation below, there are ten firms named a through j. This video shows how to calculate the hhi using several examples. A critique of the herfindahl hirschman index s use to evaluate mergers in network industries. Herfindahlhirschman and entropy t develop a stata command for.
Herfindahlhirschman index level of concentration values modification and analysis of their change. Oecd glossary of statistical terms herfindahl index definition. Apr 27, 2014 the herfindahlhirschman index hhi that measures the level of concentration in a given industry is a wellknown and commonly accepted one indicator of market competition. It allows user to generate new hhi variables for large data panels and export output in table format. Higher concentration is interpreted as a risk, although for someone with a high tolerance for risk and who wants higher returns, that person might prefer concentration. The herfindahl index, also known as herfindahl hirschman index or hhi, is a measure of the size of firms in relation to the industry and an indicator of the amount of competition among them. Stata module to generate herfindahlhirschman index hhi. To find whether it is available, there are three options. By country bycountry, hh market concentration index indicators data for years 1988 to 2018.
Constructing a postal codespecific herfindahl hirschman index applying stata software. The herfindahl index also known as herfindahlhirschman index, hhi, or sometimes hhiscore is a measure of the size of firms in relation to the industry and an indicator of the amount of competition among them. The table automatically sorts and ranks the firms by size and calculates the herfindahl hirschman index of concentration for the market. To calculate the market concentration in tikis large metropolitan city, she will need to use the herfindahl index or hi, also known as the herfindahl hirchman index or hhi. Simply select your manager software from the list below and click on download. A critique of the herfindahlhirschman indexs use to evaluate mergers in network industries. A hirschmann index can also be calculated using import or trade shares. The cr 4 index and the interval estimation of the her. The degree of concentration is defined as the market share percentage of the market controlled by each firm involved in a given market.
The differences in these index values explain a lot about the industry and are often used to estimate the division of wealth between firms. I am using the panel data where i have 10 years of time, 50 states, in. To understand what i am talking about, i have attached a table. The hhi of a market is calculated by summing the squares of the percentage market shares held by the respective firms. The study uses herfindahl hirschman index hhi to measure the market concentration and uses historical information over the period 2008. Some occupations are found in nearly every industry in the united states, while others are specific to one or only a few industries. The herfindahlhirschman index and occupational concentration. Optionally, new variables may be generated containing results. Feb 11, 2020 the herfindahl hirschman index hhi is a commonly accepted measure of market concentration. The herfindahl hirschman index hhi can be used to provide a measure of occupational concentration by industry. The value of the index is the sum of the squares of the market shares of all firms in an industry.
Government and industry analysts evaluate the level of competition in an industry using the herfindahl index. Herfindahlhirschman index level of concentration values. Since reconductoring has affected many 150 kv lines on which wind farms are connected, an analysis of the zonal price of electricity in sicily in last years will be carried out to demonstrate how this structural intervention, together with others 8, has allowed better integration of res and therefore a decrease in zonal prices and in hhi index herfindahl hirschman index. The purpose of this text is to describe a procedure that can be used to construct a herfindahl hirschman index of market concentration based on the following two pieces of information. Hhi index formula helps in analyzing and observing, if a particular industry is highly concentrated or close to. Orris clemens herfindahl june 15, 1918 in parshall, north dakota december 16, 1972 while traveling in nepal was an economist who studied natural resources. Stata module to compute herfindahl index semantic scholar. Dear statalist, i have the following hypothetical trade dataset which contains imported items by importer. Herfindahlhirschman index how is herfindahlhirschman. Sun yatsen university, china statistical software components from boston college department of economics. Regulation is most likely to occur in a market with a herfindahl hirschman index hhi of a. Concentration ratios gauge the scope of the market that a particular number of companies possess, specifically the top two four or eight companies.
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