Structure-Conduct-Performance (SCP) Paradigm: A VAR and VECM-based Granger Causality Analysis

Abstract

This study has focused on Pakistan’s manufacturing sector through the lens of the structure, conduct and performance (SCP) model over the period of 2004-2018. Three types of analyses i.e., SCP paradigm in a VAR framework, SCP paradigm in a Granger causality analysis through VAR framework and SCP paradigm in a VECM framework have been conducted. The pairwise Granger causality shows that there is bi-directional causality between structure and performance, conduct and performance and conduct and structure. The block exogeneity Wald test suggests that one-way causality is in the SCP paradigm. Three-panel cointegration tests i.e., Kao residual cointegration test, Johansen Fisher Panel cointegration test and Pedroni Residual Cointegration test confirm the existence of the long run relationship. VECM-based Granger causality exhibits the long run and short run causality in the SCP approach. The study suggests that all the stakeholders of SCP must formulate their policies by recognizing their mutual interdependence.