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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
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.