Transcript Competition Policy and Growth: Evidence from Latin America

Competition Policy and Economic Growth:
Evidence from Latin America
Esteban Greco
Diego Petrecolla
Carlos A. Romero
Economic structure and competition policy
indicators
• Considering 148 countries covered by the World Competitiveness Report,
=> LACs fall below the competition levels of developed countries measured by the
most comprehensive indicators, such as:
▫ intensity of local competition
▫ effectiveness of the antimonopoly policy.
=> LACs also fall below the worldwide average in these variables.
Economic structure and competition policy
indicators III
Table 1: Measures of competition extent, worldwide comparison
Economic Structure
Region
GDP per Share on
TFP
Openess
growth
(X+M/GDP)
Public
institutions,
Govbudg /
Competition
capita
World
(PPP)
GDP
Latam
12698
8.5%
-0.62
47.1%
3.26
-2.78
3.66
74.34
Euro Zone
31837
19.6%
-0.59
91.2%
5.00
-2.90
5.58
Nafta
49622
20.9%
0.01
33.8%
4.91
-5.86
Oceania
41256
1.3%
-0.93
43.1%
5.59
World
12445
100.0%
0.39
64.7%
3.94
1-7 (best)
GDP
Infrastructure
Life
Human
Intens. of
Eff. of anti-
local
monopoly
expectancy development competition, policy, 1-7
Trade
No. days Subsidies,
tariffs, % to start a
0 (best) -
duty
business
10
3.60
6.69
39.41
8.12
5.48
5.06
1.17
13.15
4.82
0.935
5.72
5.22
1.95
5.50
6.75
81.38
0.857
5.54
5.45
3.03
1.50
7.10
70.63
0.694
4.80
4.00
6.86
28.57
6.47
1-7 (best)
(best)
0.741
4.58
80.98
0.881
5.79
79.79
-2.80
5.41
-1.66
3.95
Source: The authors’ own elaboration based on the Conference Board, World Economic Forum, and United Nations data.
Economic structure and competition policy
indicators V
Table 2: Measures of competition extent, Latin American countries
Economic Structure
Region
Competition
Public
GDP per
Share on
Openess
Govbudg /
TFP growth
institutions,
capita (PPP) LACs GDP
(X+M/GDP)
GDP
1-7 (best)
Infrastructure
Intens. of local
Eff. of antiLife
Human
competition, 1-7
monopoly
Expectancy development
(best)
policy, 1-7 (best)
Trade
tariffs, %
duty
No. days
to start a
business
Subsidies,
0 (best) - 10
Chi l e
18561
4.57%
-0.82
68.73%
4.75
0.61
4.54
79.02
0.819
5.54
4.92
4.67
8.00
7.30
Bra zi l
11978
33.56%
-0.37
24.70%
3.35
-2.76
4.02
73.44
0.73
5.14
4.48
11.27
119.00
6.60
El Sa l va dor
7439
0.66%
-
75.25%
3.17
-3.84
4.01
71.95
0.68
5.06
3.64
4.39
17.00
9.10
Cos ta Ri ca
12445
0.84%
-2.09
80.65%
4.09
-4.62
3.92
79.32
0.773
5.06
4.11
3.62
60.00
9.30
Peru
11111
4.65%
1.63
50.43%
3.14
2.02
3.50
73.98
0.741
5.03
3.98
1.91
26.00
9.50
5332
1.12%
0.11
63.80%
3.00
-2.44
3.83
71.07
0.581
5.03
3.38
4.84
40.00
9.00
Pa na ma
15983
0.81%
-
143.83%
3.66
-2.14
4.89
76.15
0.78
4.89
4.35
5.97
7.00
8.60
Col ombi a
10716
7.17%
-1.63
37.01%
3.23
0.18
3.50
73.64
0.719
4.83
3.94
6.60
13.00
7.50
Mexi co
15322
25.06%
-1.43
67.33%
3.28
-3.71
4.14
76.89
0.775
4.76
3.49
8.30
9.00
7.90
Hondura s
4875
0.54%
-
118.48%
3.15
-4.33
2.81
73.11
0.632
4.37
3.41
4.45
14.00
-
Pa ra gua y
6223
0.58%
-
94.30%
2.57
-1.01
2.66
72.48
0.669
4.33
2.93
6.77
35.00
-
Urugua y
15967
0.77%
1.00
52.46%
4.55
-2.62
4.31
76.41
0.792
4.26
3.38
7.88
7.00
-
Argentina
18230
10.59%
0.75
38.26%
2.72
-4.31
3.52
75.80
0.811
4.20
3.19
10.57
26.00
8.30
Ecua dor
10449
2.18%
-0.15
66.85%
2.88
-0.52
3.81
75.63
0.724
4.15
3.00
7.46
56.00
-
Ni ca ra gua
4543
0.38%
-
95.55%
3.04
-0.52
3.14
74.00
0.599
3.92
3.13
3.99
39.00
7.80
Bol i vi a
5475
0.79%
1.40
78.40%
2.82
1.76
2.98
66.58
0.675
3.89
3.02
8.52
50.00
8.80
13727
5.73%
-2.08
46.11%
2.06
-18.94
2.61
74.31
0.748
3.39
2.91
12.59
144.00
5.80
Gua tema l a
Venezuel a
Source: Authors’ own elaboration based on the Conference Board, World Economic Forum, and United Nations data.
Competition policy and growth in LACs I
• We estimated the relation between competition and GDP per capita (GDPC) for a
sample of 148 countries worldwide and for LACs. We assume that the intensity of
local competition (ILC) is a driver for the GDPC.
• Three sources for economic development: investment, increased trade and other
economic policies, such as human capital accumulation and institutional reform.
• We estimate a fixed-effect panel data regression model. The estimation sample of
this paper consists of 148 countries for the years from 2006-07 to 2013-14, a total
of eight years.
• Data is from the World Economic Forum. Pub_inst, Infrastr and ILC are perception
indexes, “Public institutions”, “Infrastructure” and “Intensity of local competition”,
respectively. These measures are collected from opinion surveys and are scaled from
1 to 7 with higher values representing stronger agreement with the statements. The
rest are objective variables.
Competition policy and growth in LACs II
Table 3: Estimation results under fixed effects
Note: *** p<0.01, ** p<0.05, * p<0.1
Source: Authors’ own estimations.
Competition policy and growth in LACs IV
• The 3SLS Model by Bolaky (2013) and Krakowski (2005) controls for the endogeneity
of competition on GDP. It is a more comprehensive approach were it is posited that
the effectiveness of competition policy in promoting competition depends not only
on whether a competition law exists but also on how effectively the competition
legislation is applied.
• An equation of the effectiveness of the application of competition legislation
(Eff_antim_pol) is estimated first. Second, an equation of the intensity of local
competition is estimated with the effectiveness of the application of competition
legislation as an explanatory variable. Finally, the third equation corresponds to the
GDPC explained by the intensity of local competition among others.
• Year Dummy variables are also included in the model.
Competition policy and growth in LACs V
Table 4: Estimation results under 3SLS
Note: *** p<0.01, ** p<0.05, * p<0.1
Source: Authors’ own estimations.
Conclusions I
• Quantitative analysis enables us to examine the relationship between competition policies and GDP
per capita more deeply.
• Remarkably, while there is a significant and positive correlation between the two worldwide, this is
not the case in LACs.
• To explain this finding, leaving aside the accurateness of the indicators, GDP volatility, crisis and aftercrisis growth could be important factors that operate in two ways:
▫ First, they increase the relevance of macroeconomic factors, and consequently reduce the relevance of competition policy
as explanatory variables for GDP variations.
▫ Second, they downgrade competition policy in public policy priorities, as short-term macroeconomic factors dominate the
agenda.
• In some countries, such as Argentina and Venezuela, high inflation could be a factor distorting
competition, complicating price comparisons and generating policy reactions with regulations and
government agreements that relegate competition policy to a lower level of significance.
Conclusions III
• LACs lack a history of consumer protection policies and competition culture development, but they
show precedents of strong industrial policies and the protection of national champions, along with a
weak performance of public institutions.
• In that context, short-term rent-seeking behavior has been fostered, given that competitive
advantages and economic rents could be acquired from relatively discretional decisions, while fair
competition is not always a predictable outcome.
• This kind of behavior could have led to growth strategies with less care for competition policy goals,
but with an outcome of low productivity (TFP) relative to the rest of the world.
• A related conclusion is that competition policy alone is not enough to generate sustainable growth.
Institutional arrangements need to be strong and credible to enforce competition law so that
economic agents can see competition as a viable way to allocate resources.
Thank you for your attention