the economic effects of competition policy – …...voigt, effects of competition policy 3 •...

Presentation based on paper forthcoming withThe Journal of Development Studies

byStefan Voigt

Philipps University Marburg and CESifo

The Economic Effects of Competition Policy – Cross-Country Evidence Using Four New

Indicators

Copyright rests with the author

Voigt, Effects of Competition Policy 2

1. Introduction

• Surprising how little we know about the effects of competition policies:

Are competition agencies conducive to higher rates of economic growth?Does it make any difference whether they are independent from government?Does this hold independently of the contents of the competition laws?Are competition policies in line with other market-oriented policies?Does it make any difference if countries have competition laws?


• Here: introduce four objective competition policy indicators that deal with(i) the substantive content of competition laws,(ii) the degree to which they incorporate an economic

approach,(iii) the formal independence of the competition agencies that

are to implement the competition laws, and(iv) the factual independence of the competition agencies.

• Dataset covers 58 (out of approximately 90) states that have competition laws

1. Introduction II


Procedure:

2 Does More Competition Lead to Higher Growth? An Overview of Competing Views

3 Introducing the 4 New Indicators4 Are Competition Policies a Good Predictor for

Attitudes Toward Competition More Broadly Delineated?

5 On the Effects of Competition Policies on Economic Growth – Estimation Approach and Discussion of Results

6 Conclusion and Outlook

1. Introduction III


2 Does More Competition Lead to Higher Growth? An Overview of Competing Views

• Effects of intensity of competition for innovation as well as for growth still unclear.

• Schumpeter• Argument recently used in growth models (e.g.

Aghion and Howitt 1992 or Aghion, Bloom, Blundell, Griffith and Howitt 2005).

• Empirical evidence highly ambiguous (e.g. Rey 1997).


• No consensus on relationship between competition and growth, not surprising that there is no consensus on adequate competition policies.

“let the data speak”• Dutz and Hayri (1999): competition policy explains

differences in economic growth.Problem: Subjective evaluations of surveyed

businesspeople.

2 Does More Competition Lead to Higher Growth? An Overview of Competing Views II


• Public choice: competition laws often protect competitors rather than competition.

Existence of competition law not sufficient to assume that competition-enhancing policies will be implemented.

Two consequences for empirical research follow:(1) Aims, instruments, implementation mechanisms etc. need to be analyzed in detail.(2) the “competition friendliness” of other policy areas (cost of entry, cost of exit) should be explicitly taken into account.

• Conjecture: Independent agencies with potentially positive effects.

2 Does More Competition Lead to Higher Growth? An Overview of Competing Views III


3 Introducing the 4 New Indicators

3.0 Introductory Remarks

• Two different aspects analyzed:(1) Content of competition laws and(2) the organizational structure that is supposed to

implement the laws.


• Four indicators introduced here:(1) basis and contents of competition laws,(2) economic reasoning used,(3) formal independence of the competition agency,(4) factual independence of the competition agency.

• Construction of the indicator: Variables between 0 and 1, Based on questionnaire sent to competition authorities

3 Introducing the 4 New Indicators II


3.1 The Basis and Contents of Competition Laws

(1) Competition named in Constitution?(2) Specific Law with Purpose to Safeguard and

Promote Competition?(3) Number of years since first competition law

passed?(4) Does Competition law contain purposes other

than competition?(5) Kinds of practices deemed to be anti-competitive?

3 Introducing the 4 New Indicators III


3.2 The Economic Approach

(1) Per se rules vs. rule of reason?(2) Modern instruments promoted by economists

used? (e.g. collective dominance, conglomerate effects)

(3) Instruments with regard to merger policy? (e.g. remedies, efficiencies)

3 Introducing the 4 New Indicators IV


3.3 The Independence of Competition Agencies

• Independent competition agency := investigates anticompetitive behavior as specified in the competition law without interference from members of the executive.

• Decisions of agency carried out even if not in the interest of the executive.

• Competition officers do not have to anticipate negative consequences such as(1) being expelled,(2) being paid less, or(3) being made less influential.

3 Introducing the 4 New Indicators V


Up to 13 variables included:(1) Agency under direct supervision of government?(2) Agency restricted to safeguarding/promoting competition?(3) Number of competencies allocated to the competition agency(4) Decisions challengeable in court?(5) Appointment procedure(6) Legal term length of competition officer(7) Are terms renewable?(8) How can competition officers be removed from office?(9) Measure preventing income reductions in real terms?(10) General rule allocating cases to specific members of competition agency?(11) Members of executive with power to give instructions?(12) Members of executive with power to override decisions by competition

agency?(13) Economic rationale of decisions published?

3.3 (2) Formal independence

3 Introducing the 4 New Indicators VI


• Up to 6 variables:(1) Effective average term length(2) Incomes at least constant since 1990?(3) Budget of agency at least constant since 1990?(4) Number of times members of executive have

given instructions (1990 – 2000)(5) Number of times members of executive

overridden decisions (1990 –2000)(6) Have parties successfully drawn on goals besides

competition although they are NOT part of the law?

3.4 Factual independence

3 Introducing the 4 New Indicators VII


4 Are Competition Policies a Good Predictor for Attitudes Toward Competition More Broadly Delineated?

Some Correlations Between Competition Indicators and other competition-relevant indicators

Only variable inconsistent withcompetitionpolicy variables


• TFPi = α+ βCOMPi + χZi + εi

• TFP for 2000 (own estimates based on Cobb-Douglas Function of Hall and Jones 1999)

• “Standard growth estimators” such as schooling, investment superfluous

• Z contains both political and economic variables

5 The Estimation Approach and Results


(i) Government consumption (in % of GDP, 1990 – 2000),(ii) Openness ((exports + imports)/GDP),(iii) Population growth (1980 – 1998),(iv) Inflation rate,(v) the number of patents (U.S. Department of Commerce),(vi) political rights (Freedom House, proxy for democracy),(vii) civil liberties (Freedom House),(viii)legal origin,(ix) ethno-linguistic fractionalization,(x) government effectiveness, and(xi) regulatory quality (Kaufman et al. 2003).

Components of the Z-vector:

5 The Estimation Approach and Results II


5 The Estimation Approach and Results III


5 The Estimation Approach and Results IV


• Re-estimating the models on sub-sample (Non-OECD) leads to similar results (lower R2 but all indicators at least marginally significant).

• Estimating effects of single variables on further reduced sample (excluding transition countries) shows that restriction to safeguarding and promoting competition is highly significant.

• Indirect effect of competition policy? (if nobody needs to be bribed for entry due to a factually enforced competition policy, perceived corruption levels should be lower) This is, indeed, the case.

5 Estimation Approach and Results V



• Effects of competition laws not very robust (overall institutional quality is crucial, not necessarily competition policy)

• But: it might be too early for final verdict• Next steps:

– More and more precise indicators (e.g. time-series data);– Role of private enforcement of antitrust;– Be more precise re transmission channels (market structures;

price-cost margins)– Endogenize choice of competition policies; any specific pattern in

their diffusion?



Thank you very much for your attention!

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