From Tirole to the WBG Twin Goals: Scaling up competition policies to reduce poverty and boost shared prosperity
July 17, 2015 Editor 0The role of policies that ensure and promote competition in the marketplace have moved to the forefront of economics and the development agenda. The Australian G20 presidency highlighted competition as one of the four policy areas for the growth agenda. India’s prime-minister Modi has placed competition on his transformational reform agenda, and The Economist recently emphasized the lack of competition as a source of low productivity among Latin American firms. Jean Tirole, who won the latest Nobel Prize for his analysis of market power and regulation, demonstrated how competition policies can spur powerful firms to become more productive and can give smaller firms more opportunity to thrive.To respond to client demand at this crucial moment for economic development, the World Bank Group is generating knowledge to better understand the links among competition, growth and shared prosperity, and to develop policies that promote competition. Last week, at a Bank Group event, held jointly with the Organization for Economic Cooperation and Development (OECD), experts and practitioners discussed the growing body of empirical evidence on these matters. Representatives from the WBG’s client countries, in turn, shared how WBG competition policy tools are leveraging their development impact.
Competition in the marketplace matters for economic growth and household welfare for two reasons:
- First, it fosters more productive firms and industries, allowing domestic firms to become more competitive abroad and to export more. A WBG study shows that substantially increasing competition in Tunisia would boost labor productivity growth by 5 percent.
- Second, it protects poorer households from paying too much for consumer goods, and from missing out on the benefits of trade liberalization. In Mexico, lack of competition costs the poorest households 20 percent more than richest households. In Kenya, poverty could fall by 2 percent if competition was more intense in the maize and sugar markets.
Competition is restricted by businesses practices that undermine competitive dynamics. When firms agree to fix prices, empirical evidence reveals that consumers pay on average 49 percent more, and 80 percent more when cartels are strongest. Developing economies are still frequently marked by regulations that restrict the number of firms or limit private investment; rules that increase business risks and facilitate agreements among competitors; and rules that discriminate against certain competitors or affect competitive neutrality. When new retail firms are allowed to enter the market, real household income increases by 6.2 percent.
- Competition and poverty: How far have we come in understanding the connections?
- Knowledge-Sharing Boosts Development Know-How, as Practitioners and Policymakers Meet in Mombasa
- Partnering to Make Investment Climate Reforms Happen for Development
- Developing a financial inclusion strategy: 5 lessons from Paraguay
- How can we leverage digital technology for financial inclusion?
- Institutional Investment in Infrastructure (“In3”): A view from the bridge of a development agency
Categories: World Bank PSD
Tags: reduce poverty
Subscribe to our stories
- Device that recycles vaporized water from power plants wins MIT $100K May 28, 2019
- Why Do Foreign Investors’ Attitudes toward Women Matter? May 28, 2019
- When less is more: coordinating innovation in open versus closed source software development May 28, 2019
- Social entrepreneurship: an emerging market perspective, some fresh evidence from Ghana May 28, 2019
- Influence of personal traits on social entrepreneurship intention: an empirical study related to Tunisia May 28, 2019