Chapter 14: The Impact of Competition on Macroeconomic Performance
1 Karl Aiginger 1 INTRODUCTION AND OBJECTIVE The competition–innovation–performance triangle is investigated at the micro level from the days of Schumpeter to the works of Aghion today. This chapter investigates the impact of the toughness of competition on the macroeconomic performance of countries. The relation between the degree of competition and a company’s performance is at the heart of competition policy, and the relation between competition and innovation is discussed and investigated intensely in industrial economics. The impact of competition on innovation started with Schumpeter’s hypothesis2 that monopoly proﬁts were necessary for innovation, leading then to u-curve relationships where innovation is largest for a medium-range degree of competition, but lower for very tough as well as for very lax competition. Empirical studies on the growth diﬀerences between countries increasingly stress the role of institutions,3 but refer more often to regulation than to competition. Conventional macroeconomic growth models did not model the impact of competition, but assumed perfect competition. This changed in the New Growth Theory, where growth depends on purposeful and maximizing activities for which competitive pressure plays an important role. However, this has not resulted – with very few exceptions (see Griﬃth and Harrison (2004) or Salgado (2002) – in the inclusion of competition variables in empirical growth equations. We use a set of thirteen indicators on the toughness of competition. The set combines survey data from managers, but also from experts, with the data on the regulation of product markets being provided by the...
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