4 Competition (Law Enforcement) and Economic Growth

Abstract

This chapter assesses whether competition promotes economic growth. In contemplating the design of competition policy in a developing country, the first question to be answered is whether a policy that aims to maximize competition with competition law enforcement will deliver economic growth and meet the development needs of a developing country. As indicated by all the growth models examined in the previous chapter, the key to economic growth is the ability to create more output for the economy with existing resources; it relies on productivity gains and innovation. The chapter then examines whether competition promotes productivity growth and innovation. Overall, there is overwhelming evidence that increased competition leads to higher productivity and economic growth. There is also very strong evidence that competition law enforcement promotes productivity and economic growth. However, it should be noted that at least one study concludes that competition law enforcement has negligible effect on economic growth. Meanwhile, there is some conflicting evidence as to whether a minimum degree of institutional capacity is needed to allow a country to benefit from the introduction of competition law. One other factor that has been traditionally given a high degree of importance for economic growth in developing countries is foreign direct investment.