IDB: Stronger Competition Could Lift LAC Incomes 11% and Cut Inequality 6%

IDB Group President Ilan Goldfajn said the evidence shows that markets are not merely a backdrop for development but a driving force behind it.

Latin America and the Caribbean (LAC) could significantly boost prosperity and reduce inequality by making markets more competitive, according to a new flagship report by the Inter-American Development Bank (IDB). The study estimates that stronger competition could raise GDP per capita by 11% and lower income inequality by 6%, underscoring the central role of market dynamics in the region’s development trajectory.

Titled “Markets for Development: Improving Lives through Competition,” the report finds that weak competition and high market concentration across LAC economies are major drags on growth. These conditions suppress wages, limit innovation, and keep firms small and informal, preventing productivity gains from translating into broad-based prosperity. Drawing on a newly assembled cross-country database of competition indicators, the report argues that fairer, more open markets are essential to unlocking opportunity for workers, consumers, and businesses.

IDB Group President Ilan Goldfajn said the evidence shows that markets are not merely a backdrop for development but a driving force behind it. When competition functions effectively, the private sector can generate jobs, spur innovation, and deliver better outcomes for consumers and workers alike. Stronger and fairer markets, he noted, are key to realizing the region’s untapped potential.

The report was launched at the IDB’s headquarters in Washington as part of the Development in the Americas (DIA) series. Using new empirical evidence across countries and sectors—including telecommunications, banking, and health—it demonstrates how well-designed, pro-competition policies can deliver tangible gains in productivity, wages, and consumer welfare.

Key findings highlight the scale of the challenge. Market concentration in Latin America and the Caribbean is about four times higher than in advanced economies. Firms in the region charge markups averaging 35% above costs, compared with roughly 20% in more competitive markets. Workers capture only about 50% of the value they generate, far below the 65% share in the United States and 81% in other advanced economies. Firm dynamics are also skewed: 95% of companies employ fewer than five workers and account for 57% of total employment, while the most productive firms—those with more than 50 employees—represent just 1% of firms and provide only 20% of jobs.

The report estimates that if labor markets in LAC were as competitive as those in advanced economies, GDP per capita could rise by as much as 25%. Such gains would be driven by higher investment and production, better allocation of resources, and greater worker mobility into more productive jobs with fairer wages.

IDB Chief Economist and Economic Counselor Laura Alfaro Maykall emphasized the Bank’s commitment to evidence-based policymaking. She said the report equips policymakers and researchers with robust data to design smarter reforms that promote innovation, fair pay, and sustainable growth.

The study also points to successful pro-competition reforms already delivering results across the region. Number portability in telecommunications has expanded access and reduced prices; digital payment systems have lowered transaction costs for firms and consumers; loan portability has increased credit options and narrowed interest-rate spreads; and public procurement reforms have reduced prices for essential goods, including medicines such as insulin.

To scale these gains, the report outlines three core priorities for governments. First, reduce market fragmentation by investing in infrastructure, harmonizing regulations, enabling system interoperability, and easing border processes so firms can grow domestically and integrate into global value chains. Second, design smarter regulations by removing rules that trap firms at small scale and by adopting fair, evidence-based policies that correct market failures without stifling growth. Third, strengthen competition agencies by granting them greater independence, resources, and enforcement authority to deter anticompetitive practices.

The report cautions that legal reforms alone are not enough. Lasting progress requires investment in state capacity, credible enforcement through independent courts and autonomous regulators, and stable political institutions to prevent policy reversals. With these foundations, stronger competition can become a powerful engine for inclusive growth across Latin America and the Caribbean.