Reviving Growth: How Stronger Competition Can Transform Latin America’s Economy

The World Bank report reveals that weak competition and regulatory barriers are major obstacles to productivity and innovation in Latin America and the Caribbean. Strengthening competition policy and empowering antitrust enforcement are essential for unlocking inclusive and sustainable economic growth.

Latin America and the Caribbean (LAC) region has long found itself stuck in a cycle of underwhelming economic performance and low productivity growth. Despite its natural wealth and human capital, the region has failed to converge with higher-income economies. A new report published by the World Bank and developed with support from prominent institutions like the OECD, Universidad de Los Andes, and the University of Brasilia, makes a compelling case for putting competition at the center of the region’s growth agenda. Drawing on novel empirical data, cross-country case studies, and institutional insights, the report identifies one of the region’s core problems: markets lack the competitive pressure necessary to drive innovation, productivity, and dynamic economic transformation.

The Entrenched Power of Dominant Firms

The report paints a sobering picture of markets across LAC where dominant firms often enjoy unchecked power. Many of these players benefit from regulatory protection or political connections, allowing them to block new entrants and suppress innovation. Market concentration is high, and barriers to entry such as complex licensing, high fees, and bureaucratic red tape are widespread. For instance, opening a business in many LAC countries can take over 60 days, compared to around 15 days in South Asia. These obstacles result in stagnant markets with high markups, low firm turnover, and little incentive for companies to improve. As new firms struggle to enter, and existing firms face no pressure to evolve, the process of "creative destruction" that drives modern economies remains largely dormant.

This dynamic not only limits innovation but also sustains inefficient firms. Rather than reinvesting profits into new technologies or better products, many incumbents focus on rent-seeking using their market power to maintain dominance. As a result, productivity growth remains sluggish, and a disproportionate share of employment is concentrated in micro and small enterprises with little growth potential. Approximately 70 percent of workers in the region are employed in firms with fewer than 10 employees, a figure starkly higher than the 23 percent in the United States.

Success Stories of Smart Deregulation

Despite the grim baseline, the report highlights cases where targeted reforms have yielded measurable improvements. In Peru, a major regulatory overhaul empowered the competition authority Indecopi to identify and strike down irrational local business regulations across 1,800 municipalities. This reform led to an 11 percent increase in firm-level productivity. By naming and shaming harmful rules and increasing fines for non-compliance, Indecopi was able to reduce entry barriers and spark growth in several key sectors.

Another success story comes from Peru’s telecommunications sector. There, ex-ante regulations that raised quality standards not just removed barriers helped boost revenue productivity by 20 percent among top-performing firms. This demonstrates that effective policy isn’t just about deregulation but also about fostering a regulatory environment that rewards innovation and discourages low-quality, low-efficiency business models. These findings underscore the importance of balancing openness with strategic governance.

Antitrust: A Powerful Yet Underused Tool

Antitrust enforcement in LAC remains a powerful but underutilized lever for economic change. Agencies like COFECE in Mexico and the Fiscalía Nacional Económica in Chile have shown that well-executed competition enforcement can significantly improve market outcomes. In Mexico, for example, sanctions imposed on firms engaging in anticompetitive behavior led to a 5.8 percent increase in sectoral sales and a 1.4 percent rise in annual wages. Contrary to the common perception that antitrust enforcement might harm employment, the report finds that it actually contributes to job creation and higher wage bills.

Still, many competition agencies in the region remain understaffed and underfunded. Compared to OECD standards, the average number of ex officio cartel investigations in LAC is low, and tools like dawn raids, leniency programs, and robust fines are not widely deployed. Strengthening these agencies both financially and institutionally is a critical step toward ensuring that pro-market reforms are enforced effectively and consistently.

Global Competition and the Innovation Divide

One of the report’s most compelling sections explores how LAC firms respond to international competition. Trade shocks particularly those triggered by China’s entry into the World Trade Organization had mixed effects across the region. In Mexico, larger, more productive firms were able to innovate and survive, while smaller firms either shrank or exited the market. In Chile, increased imports from China and India led frontier firms to improve product quality, but less productive firms saw a decline in innovation and output. In Peru, the productivity effects of trade liberalization were positive when tariffs were reduced on inputs, but often negative when applied to final goods.

These findings reveal a nuanced truth: international competition alone is not a silver bullet. Without domestic capability-building such as improving managerial skills, supporting R&D, and providing access to finance most firms cannot benefit from open markets. Only those near the technological frontier are able to survive and adapt.

Charting a New Path for Inclusive Growth

The final message of the report is clear: competition policy must be central to the region’s development strategy. But this is not just about changing laws—it’s about building robust institutions, fostering a culture of innovation, and aligning policies across sectors. Innovation and competition go hand in hand. Without the pressure to compete, even well-resourced firms have little reason to improve. And without the capacity to innovate, even the most competitive markets will struggle to generate long-term gains.

Reforming competition policy in LAC means dismantling regulatory privileges, empowering antitrust authorities, and ensuring that market rules are fair and transparent. The report offers a blueprint for how to achieve this and provides ample evidence that doing so can unlock the region’s untapped potential. The stakes are high, but the path forward is clear: a future of inclusive, dynamic, and sustainable growth is possible if the region embraces competition as a catalyst for change.