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p. 67 of 77 BACK | NEXT Foreword, Acknowledgments, Acronyms and Abbreviations, Definitions I. Developing Asia and the world II. Economic trends and prospects in developing Asia III. Promoting competition for long-term development Introduction Benefits of competition Competition policy regimes Consistency with other development objectives Competition policy in the context of regional and global integration Issues for implementation Effects on government finances Toward a competitive future Summary and conclusions Endnotes and references Statistical appendix

Asian Development Outlook 2005 : III. Promoting competition for long-term development

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Introduction

Across developing Asia, countries are striving to achieve or maintain high rates of economic growth and employment. Crucial to reaching these goals is competition in product and factor markets, which leads to greater choice, lower prices, and increased production efficiency, and which ultimately contributes to a country's growth and development. As Ahn (2002, p. 5) notes, "Competition has pervasive and long-lasting effects on firm performance by affecting economic actors' incentive structure by encouraging their innovative activities, and by selecting more efficient ones from less efficient ones over time."?¹ Given the importance of firms as the drivers of growth and employment, promoting competition is immediately relevant to the Asia-Pacific region as it adopts open market-oriented policy regimes.

In the past two decades, many countries in the region have adopted market-based reforms and reduced government intervention in their economies in response to heightened competition resulting from regional and global integration. Trade barriers have been lowered, foreign investment encouraged, exchange rate pegs removed, protection of domestic industries withdrawn, and government enterprises privatized. These changes reflect confidence that open-market forces will strengthen firm-level productivity and competitiveness, and will contribute more to growth and development than a closed, centralized orientation would.

As a result, policies to promote competition have climbed up the domestic and trade agenda in Asia, just as they have in the rest of the world. However, Asian countries have been slow to adopt and implement comprehensive competition policies, reflecting a debate between the pros (who point to efficiency gains from greater competition, lower prices, etc.) and the antis (who are concerned about compromising industrial policy, cost of enforcement, etc).

This part of Asian Development Outlook 2005 reviews recent developments in competition policy and the interactions among competition, policy, and economic development in Asia, with an eye toward distilling lessons for the future. It reviews the relationship between competition policy and other important policies--such as industrial, trade, and foreign direct investment (FDI) policies. To draw some general principles for developing Asia, this part assesses competition and policy regimes in general and in six developing Asian countries in particular, some with competition laws, some without, in the context of general economic trends, industrial concentration structures, and policy reforms.²

One of the major arguments of this part of Asian Development Outlook 2005 is that competition policy is complementary to other policies. Consequently, liberalization and privatization policies cannot be expected to automatically contribute to economic growth if competition policy and institutional infrastructure are lacking. The domestic benefits of effective competition policy also merit attention, regardless of its consideration in multilateral trade negotiations. And in a dynamic context, finding a balance between promoting short-term competition and preserving long-term incentives for innovation and invention is a critical challenge for sustaining growth and development.

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