Lending a Hand to the Invisible Hand? Assessing the Effects of Newly Enacted Competition Laws

Abstract

Far more than 100 countries have adopted competition laws. Their macro-economic consequences, however, are rarely dealt with. The few available studies inquiring into the macro-economic effects of competition laws mostly rely on subjective indicators and employ an inadequate instrumental variable approach. This paper adds to the literature by relying on objective macro-economic indicators and on a differences-in-differences approach. We find robust evidence that competition laws do enhance economic growth. In low-income countries this effect can be traced back to an increase in investment levels. Competition laws have, however, no significant effect on total factor productivity or foreign direct investment. Finally, corruption appears to be declining after the introduction of competition laws in low-income countries.