Competition policy and productivity growth: an empirical assessment

This paper empirically investigates the effectiveness of Competition Policy by estimatingits impact on Total Factor Productivity (TFP) growth for 22 industries in 12 OECD countries over the period 1995-2005. Using country-industry and time fixed effects, and controlling for most other determinants of productivity growth, we find a robust positiveand significant effect of competition policy as measured by newly created indexes on TFPgrowth. We provide several arguments and results based on instrumental variables estimators as well as non-linearities, to support the claim that the established link can be interpret in a causal way. At a disaggregated level, the effect on TFP growth is particularly strong for specific aspects of competition policy related to its institutional set up and antitrust activities(rather than merger control). The effect is further strengthened by a low cost of contract enforcement, suggesting institutional complementarities between competition policy and the efficiency of law enforcement institutions.