By: Staff Writer
May 20, 2025
The World Bank said in their latest report that the lack of competitive pressures on firms in the Latin American and Caribbean (LAC) region hinders “creative destruction,” and disincentivizes innovation.
The report, “Competition and Productivity Growth in Latin America and the Caribbean,” said: “There are many potential reasons for the decades of slow growth in Latin America and the Caribbean, including macroeconomic volatility, low savings and investment rates, underdeveloped institutions, and resource misallocation across sectors and firms.
“However, one significant factor stands out: the lack of competitive pressure on firms, which hinders creative destruction and results in inadequate incentives for innovation. This issue has not received sufficient attention from policy makers and analysts.”
The report continued: “Creative destruction in the region is limited by barriers to entry that protect inefficient and unproductive firms from competition, allowing them to accumulate rents.
“Many of these barriers are rooted in local and national government regulations. These regulations reduce competitive pressure, leading to low entry rates, high markups, slower growth among firms, and limited efforts to innovate, all of which contribute to low productivity growth.”
National competition authorities have been shown to boost competition across different countries in the LAC and have resulted in better market outcomes.
The report also said: “The region requires deliberate measures to boost productivity at the firm level. Competition policy plays a key role by leveling the playing field for market participants, unblocking the creative destruction process, and providing highly productive enterprises with new incentives to grow and innovate, while enabling unproductive enterprises to exit.
“Yet competition in domestic markets must be accompanied by complementary policies that enhance worker and firm capabilities to increase the share of firms that are closer to the global technological frontier and able to benefit from increased foreign competition.”