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 Source: The authors’ own elaboration based on the Conference Board, World Economic Forum, and United Nations data. Table 1: Measures of competition extent, worldwide comparison

Economic structure and competition policy indicators V Source: Authors’ own elaboration based on the Conference Board, World Economic Forum, and United Nations data. Table 2: Measures of competition extent, Latin American countries

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 to , 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 Note: *** p<0.01, ** p<0.05, * p<0.1 Source: Authors’ own estimations. Table 3: Estimation results under fixed effects

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 Note: *** p<0.01, ** p<0.05, * p<0.1 Source: Authors’ own estimations. Table 4: Estimation results under 3SLS

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 after- crisis 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.

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