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SMEs, Competition Law and Economic Growth Cassey Lee (Singapore APEC Study Centre, ISEAS-YII)
Bernadine Zhang (formerly Policy Support Unit, APEC)
APEC Economic Committee Second Plenary Meeting
2-3 September 2015 | Cebu, Philippines
Introduction
• On-going research project on SMEs and competition law in Asia-Pacific – Michael Schaper (ACCC) and Cassey Lee (ISEAS-YII)
• SMEs, competition law and economic growth –Cassey Lee (ISEAS-YII) & Bernadine Zhang (formerly PSU-APEC)
• Questions:– What is the nature of SMEs?
– What role do SMEs play in the economic growth?
– How does competition law affect this role?
The Nature of SMEs
• Heterogeneous firms in the economy – size,
ownership, organization, market-orientation,
performance
• Firm size – focal point for SME-oriented policy
• No international consensus on how to define SME
• Criteria – no. of employees, annual sales, assets,
capital
SMEs Role in the Economy
• A large proportion of enterprises are SMEs
• Asia-Pacific
> 97% of total enterprises are SMEs
> 70% of firms are small and micro enterprises
• Employment: 25% - 80%
• Output/GDP: 30% – 50%
SMEs as a % of Total Enterprises in APEC
SMEs Share of Total Employment
Source: APEC-PSU (2013)
Sources of Growth: Micro to Macro
Macro-Level:
Capital, Labour, Technology
Industry-Level:
Growth, Structural Change
Firm-Level:
Reallocation, Selection
SMEs and Firms Size Distribution
Firm Size (X)
P(X)
SMEs
Firm-Level Dynamics – Resource Reallocation
Exit
Entry
Grow
Shrink
Merge
Determinants of Firm Performance
• Internal:
– Entrepreneurship
– Management
– Ownership structure
– Organizational structure
– Human capital
– Other no-replicable resources
• External:
– Market competition (input & output, domestic & export)
– Access to financing (capital)
– Laws & regulations licensing, competition law
How Competition Law Affects Firms
• Focus on promoting competition (welfare objective)
• Behavioral:
– Prohibitions against price fixing and abuse of dominance
strategic behavior of firms
• Structural:
– Merger controls market and industry concentration
• Remedial measures (Ex-Post) Observable Effects
• Deterrence effects (Ex-Ante) Not Observable Effects
How Competition Law Affects Firms
• Short-Run - Static Efficiencies
– Higher level of efficiency (nearer to production frontier /
resource utilization)
– Growth & mergers
• Long-Run - Dynamic Efficiencies
– Innovation, Entry-Exit, Growth, Mergers
• The empirical literature has thus far focused on a
cross-country comparative approach
Empirics of Competition Law and GrowthArticle Focus Data Methodology Findings
Hylton & Deng (2007)
• Scope of CL• CL and competition
102 Countries;2003-2004
• Scope Index (SI)• Comp Intensity (CI)• CI=f(SI)
SI - significant
Voigt (2009) • CL and productivity(TFP)
80 Countries;2000
• 4 CL indicators – (i) basis (ii) economic approach (iii) de jure indep (iv) de facto indep• TFP = f(CLI)
CL indicators –significant but weak
Schaper et al (2010)
• CL and entrepreneurship
21 Countries;2006
•New business (GEM)• Antitrust Law Index (ALI)•Global Comp Review (GCR)• Corr(GEM,ALI);
Corr(GEM,GCR)
No correlationInsignificant
Ma (2011) • CL and productivity (GDP/ΣL)
101 Countries;1990-2004
• Scope Index (SI)• Efficiency (EFF)•GDPL = f(SI)
• SI – insignificant• SI*EFF –
significant for rich countries
Petersen (2013)
• CL and growth 154 Countries;1960-2005
•GDP per capita (GDP)• Age of CL (ACL)•GDP=f(ACL)
Empirics of Competition Law and Growth
• Empirics of competition law & growth – still nascent
• Hampered by data limitations
• Effects on SMEs – need micro-level data
• Studies in Schaper & Lee (2015)
– Advocacy, learning and capacity building
– Enforcement and SMEs e.g. trade associations, franchising
– Competition Law provisions (presumptions) and exclusions
(size dependence regulations)
– Competition policy and SME policy
Structural Change and Economic Growth
• Developed and developing economies experience structural change– Industrialization, Deindustrialization
• Lack on framework on heterogenous firms and structural change?
• Firm size distribution depends on:– Level of development
– Economic structure
• Less developed economies – SMEs are concentrated in fewer sectors
• Infrastructure-related sectors have less SMEs
• Structural change can alter firm size distribution
• What is the role and effects of CL on SMEs?
THANK YOU