Competition, Financial Discipline and Growth

The interaction between domestic competition and economic growth of a country or region is a topic of intense policy debate. For example, in a highly-publicized book, Michael Porter (1990) strongly argues that there exists a positive causal relation between competition and growth, since competition at home forces firms to innovate and to be efficient.1 This Darwinian view of competition is supported by recent empirical evidence (e.g. Nickell (1996) or Blundell et al. (1995)) pointing at a positive correlation betweenn competition (measured eithe by the number of competitors in the same industry or by the inverse of a market share or profitability index) and productivity growth within a firm or industry.