Contribution of Competition to
Growth
Peter D’Souza
Growth Team
Department for International Development
1 Palace Street, London SW1E 5HE
Abercrombie House, Eaglesham Road, East Kilbride, Glasgow G75 8EA
Competition – what it means in
practice
• Fair, effective competition creates level
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playing field for domestic firms
Free entry and exit
Access to inputs and markets
Cartels raise prices and limit choice
Links with international competitiveness
More effective competition also limits
corruption
Page 1
Competitive Markets Essential
for Growth – Basic Premises
• Fair and effective competition - and
competition policy - is fundamental to the
functioning of a modern market economy
• Efficient, fair markets essential to catalyse
private sector development and growth
• Competition drives innovation, technology and
productivity improvements; these drive
economic growth
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Some Economics: Production
Function and Growth
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• Cobb-Douglas: Y  AK L
• Endogenous growth theory: long run
economic growth depends on rate of
technical progress
• Production Possibility Frontier moves out
with enhancements in innovation and
productivity
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Production Possibility Frontier
K
Potential output increases with innovation and
productivity enhancements, for any given
level of K, L inputs
PPF²
PPF¹
L
Page 4
More Competitive Pressure,
More Innovation - Evidence
• Firm-level surveys confirm the importance of competitive
pressure for incentives to innovative and increase
productivity
Source: WDR,
2005
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Competition and the Downturn
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Competition principles challenged as politicians
try to avoid bankruptcies and protect jobs
Lack of integration into globalised economy might
have helped escape certain effects of recession,
but not a reason to avoid future integration.
Special features of the banking sector may justify
government intervention.
Restrictive practices typically worsen in
recessions
Multinational companies prioritise production and
jobs in home market, whilst developing countries
often face cuts.
In a recession Competition Authorities should
focus activity on advocacy and market studies,
rather than pushing for new reforms.
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UK Supports Fair Market
Competition
“We will help governments that, like us, want
to promote open and fair markets in which
enterprises have access to resources and
skills, without being disadvantaged by the
power of vested interests or corruption.”
“We will work to improve the business
environment for investment and growth…
through an African-led Competition Forum
the will help governments identify obstacles
to fair competition.”
DFID White Paper, July 2009
1 Palace Street, London SW1E 5HE
Abercrombie House, Eaglesham Road, East Kilbride, Glasgow G75 8EA
Page 7
DFID’s Competition
Assessment Framework (2008)
• Flexible diagnostic tool for policy makers
• Holistic approach, reflecting multiple causes of
limited competition
• Sequential set of questions
• Annexes highlighting key competition issues in
particular sectors
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Uses of the CAF
• Developed as side product of continuing
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DFID-WBG (FIAS) competition programme
in India with CCI
Africa Regional Workshops – Tanzania
(Jan08), Botswana (Feb 08)
India, Bangladesh (March 08)
Vietnam, ++ (2008)
ODI Competition Research Programme into
state of competition in Africa and Asia
(2008 – 2009)
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