Front Matter
Author:
Reda Cherif
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Fuad Hasanov
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© 2021 International Monetary Fund

WP/21/80

IMF Working Paper

Institute for Capacity Development

Competition, Innovation, and Inclusive Growth

Prepared by Philippe Aghion, Reda Cherif, and Fuad Hasanov1

Authorized for distribution by Valerie Cerra

March 2021

IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Abstract

We provide an overview of the theories and empricial evidence on the complex relationship among innovation, competition, and inclusive growth. Competition and innovation-le d growth are critical to drive productivity gains and support broad-based growth. However, new technologies and trends in market concentration are stifling future innovation while contributing to the marked increase in inequality. Beyond consumer welfare in a narrow market, competition policy should adapt to this new reality by considering the spillover and dynamic effects of market power, especially on firm entry, innovation, and inequality. Innovation policies should tackle not only government failures but also market failures.

JEL Classification Numbers: D63, O40, O30, O25, L10, D40

Keywords: Inequality; inclusive growth; competition; market power; innovation; Big Tech

Authors’ E-Mail Addresses: paghion@fas.harvard.edu; acherif@imf.org; fhasanov@imf.org

Contents

  • Abstract

  • I. Introduction

  • II. The Rise of Market Power

  • III. Competition, innovation, and inequality

  • IV. Competition and growth policies for inclusive growth

  • V. Conclusion

  • References

  • Figures

  • Figure 1. Firm Markups by Sector: Emerging Markets and Developing Economies

  • Figure 2. The Rise of Market Power in Selected Advanced Economies and Emerging Markets

1

Aghion: College de France and London School of Economics; Cherif and Hasanov: IMF. We are grateful to Valerie Cerra, Woon Gyu Choi, Sharmini Coorey, Ruud De Mooij, Federico Diez, Barry Eichengreen, Asmaa El-Ganainy, Shafik Hebous, Roshan Iyer, Francesco Luna, Samuele Rosa, and Martin Schindler for excellent discussions and suggestions. We would also like to thank participants in the Inclusive Growth book seminar series organized by the IMF Institute for Capacity Development for helpful comments. This is a draft of a chapter that has been accepted for publication by Oxford University Press in the forthcoming book titled “How to Achieve Inclusive Growth”, edited by V. Cerra, B. Eichengreen, A. El- Ganainy, and M. Schindler due for publication in 2021. All errors are our own.

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Competition, Innovation, and Inclusive Growth
Author:
Reda Cherif
and
Fuad Hasanov