Does competition improve productivity in developing countries?

Using the manufacturing sector data at the three-digit level, the paper examines whether the degree of competition improves productivity in developing countries. The degree of competition is measured through markups while productivity is measured through total factor productivity (TFP) and labor productivity. All are computed by industries. Taking account of endogeneity issues and of the role of relevant control variables, the results show that in Jordan and Morocco, markup has a significant and negative impact on productivity growth. In Egypt, while markup does not seem to affect productivity growth, a decrease in the share of state-owned enterprises (SOEs) in a given industry has a significant and positive impact on productivity growth. In general, the existence of State-Owned Enterprises is an obstacle to competition. We conclude that the greater the degree of competition, the higher the productivity in the three countries. © 2009 Taylor & Francis.