Does More Intense Competition Lead to Higher Growth?

Abstract

Empirical evidence indicates a strong correlation between long-run growth and effective enforcement of antitrust and competition policy. The relationship between the intensity of competition in an economy and its long-run growth is an open question in economics. Theoretically, there is no clear-cut answer.

Empirical evidence exists, however, that in some sectors more competition leads to more innovation and accelerates productivity growth. To complement those findings and capture economywide effects, Dutz and Hayri conduct a cross-country study. They examine the impact on growth of various measures having to do with intensity of domestic competition - beyond the effects of trade liberalization.

Their results indicate a strong correlation between long-run growth and effective enforcement of antitrust and competition policy.

An earlier version of this paper - a product of Public Economics, Development Research Group - was presented at a conference, Industrial Reorganization and Development, in Toulouse, France (November 1998). The study was funded by the Bank's Research Support Budget under the research project Does More Intense Competition Lead to Higher Growth? (RPO 682-47). The authors may be contacted at [e-mail] or [e-mail]