The Aggregate Productivity Cost of Weak Competition in Latin America

By how much could countries raise their income per capita by adopting regulations that enhance competition between firms? To answer this question we build a macroeconomic model that incorporates explicitly supply chains. We use this framework to study how an increase in the degree of competition between firms improves the allocation of resources along the supply chain, and thus raises aggregate production and income. The model is calibrated on data from Latin America and quantifies the potential productivity gains from encouraging competition and reducing markups.