Competitive Advantage and Competition Policy in Developing Countries

Competitive Advantage and Competition Policy in Developing Countries

The CRC Series on Competition, Regulation and Development

Edited by Paul Cook, Raul Fabella and Cassey Lee

The book discusses competition from different theoretical perspectives and examines the implications these viewpoints have for policy. The contributors assess competitiveness in domestic markets and the impact of foreign competition. They also review the experiences of a range of countries in developing competition policy and examine both the strengths and weaknesses of these policies.

Chapter 7: Competition Policy and the Legal System in Brazil

Germano Mendes de Paula

Subjects: development studies, development economics, law and development, economics and finance, competition policy, development economics, public sector economics, law - academic, law and development

Extract

Germano Mendes de Paula INTRODUCTION Brazil used to be a very closed economy regarding international trade. Like many other developing countries, Brazil adopted an import substitution industrialization (ISI) strategy. In this context, competition policy was misplaced, for several reasons. A substantial proportion of large companies were state-owned and therefore the government did not need to control pricing practices through the use of antitrust policy. Moreover, the most important state-owned enterprises (SOEs) were set up in order to mitigate the weaknesses of the domestic private sector rather than put limits on cartelization or mergers and acquisitions (M&As). The government fostered market domination by a few large SOEs. However, Brazil, as many other Latin American nations, experienced a very important shift in terms of economic policy in the 1990s. Indeed, the country engaged in intense trade liberalization and also deregulated and privatized companies. In this new environment, a massive wave of mergers and acquisitions occurred in which multinationals were in the acquiring corner for around two-thirds of all transactions (Amann, de Paula and Ferraz, 2002). As a consequence, the share of the foreign companies in the top 100 non-financial firms in Brazil increased from 26 per cent to 40 per cent in the period 1990–98. The 1990s was a turning point for the Brazilian economy, after which the government and the corporate sector have faced a very different economic environment. Instead of restricting competition, the government began to encourage it, mainly via trade liberalization and to a lesser...

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