Competition Policy and Economic Development

byRughvir (Shyam) Khemani

Advisor, Competition PolicyFinancial and Private Sector Development

Vice-PresidencyThe World Bank Group

Washington DCUnited States

Email: rskhemani@worldbank.org

Constraints to Promoting Competition in Developing and Emerging Market

Economies•Inherent high industry/market and ownership concentration in product & financial markets.• Entrenched firms & other stakeholder-interest groups, close or opaque government-business relations lobbying, rent-seeking behavior, corruption & bribery• Underdeveloped capital & financial markets, insufficient sources of commercial information, and related ‘business’ infrastructure…….• Weak legal framework, contract enforcement, property rights• Institutional capacity, resource, skills, knowledge constraints, staff turnover• Lack of political will/ competition culture.

The Tyranny of Predatory Vested Interests: Competition Can Be Thwarted …

“The corrupt version of capitalism—when powerful corporations deliberately try to eliminate healthy competition to preserve their privileged position—generates economic inefficiencies and social injustice, thereby undermining political support for the free-market based system….” (R.Rajan & L.Zingales, The Road to Prosperity:Saving Capitalism from Capitalists, Transition, 2003)

Number of Countries with Competition Laws by Region

AfricaNo of countries: 47 + 3 regional integrations

East Asia and Pacific No of countries: 32

Latin America and Caribbean +North AmericaNo of countries: 35 + 2 regional integrations

Europe and Central AsiaNo of countries: 57 + 1 regional integration

Middle East, North Africa No of countries: 21

South Asia No of countries: 8

No of countries with a Competition Law: 17 (including regional integrations)

No. of IDA countries: 11/39

CL: 13

No. of IDA countries: 4/13

CL: 19(including regional integrations)

No. of IDA Countries: 2/9

CL: 47(including regional integrations)

No. of IDA Countries: 8/10

CL:7

No. of IDA Countries: 0/2

CL: 3

No. of IDA Countries:3/8

Figure 1Per Capita GDP (constant 2000 USD in thousands) and Intensity of

Competition in Local Markets

Source: Global Competitiveness Report 2006-2007 and World Bank DDP, 2005

0

5

10

15

20

25

30

35

40

Intensity of Local Markets Competition

GD

P P

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Ca

pit

a

IDA Countries Non-IDA countries

Low

High

Low IntensityHigh Intensity

Figure 2Intensity of Local Markets Competition and Effectiveness of Competition

(Antitrust) Law- Policy

Source: Global Competitiveness Report 2006-2007

Effectiveness of Competition (Antitrust) Law-Policy

Inte

ns

ity

of

Lo

ca

l Ma

rke

ts C

om

pe

titi

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IDA Non-IDA countries

Low Effectiveness

High Effectiveness

Low

High

Figure 3Effectiveness of Competition (Antitrust) Law- Policy and the Extent of Market

Dominance

Source: Global Competitiveness Report 2006-2007

Effectiveness of Competition (Antitrust) Law-Policy

Ex

ten

t o

f M

ark

et

Do

min

an

ce

IDA Non-IDA countries

Low Dominance

Low Effectiveness

High Effectiveness

High Dominance

Figure 4 Business Competitiveness Index and Effectiveness of Competition (Antitrust)

Law-Policy

Source: Global Competitiveness Report 2006-2007

Effectiveness of Competition (Antitrust) Law-Policy

Bu

sin

ess

Co

mp

etit

iven

ess

Ind

ex

IDA Non-IDA countries

High Effectiveness

Low Effectiveness

Low

High

Key Factors for Successful Competition Law and Policy Implementation

• Complementary, broader ‘systemic’ public policies and regulations impeding competition also need to be simultaneously or sequentially addressed (trade, investment, ‘doing business’…reforms) •Well designed CLP, specialized agency, well resourced-financial and human capital•Independence of/safeguards to protect competition agency, case review and adjudication process from political and business pressures‘Demand’ driven process…in response to credible complaints• Broad public understanding of benefits and support for competition