NEW YORK, Dec 11 (Reuters) - Latin America and the Caribbean could lift their per-capita output by 11% and cut inequality by 6% by making markets more competitive, according to a new Inter-American Development Bank report published on Thursday.
The study frames weak competition as a central reason the region has failed to convert decades of macroeconomic progress into sustained productivity gains. Markets in Latin America are, on average, "about four times more concentrated than advanced economies,"
it said, with effects that spill directly into prices, wages and company growth.
The IDB concluded that deeper competition would boost the region's productivity, expand formal employment and strengthen fiscal capacity. "If Latin America had the level of competition of advanced economies, GDP per capita would be ... about 11% higher, and inequality will also fall," it said, arguing that the shift is essential if the region is to raise living standards over the next decade.
"The report demonstrates that markets are not merely a contextual element in development; they play an active role in driving it," IDB Group President Ilan Goldfajn said in a statement. "When competition works, the private sector can do what it does best - create jobs, boost innovation, and deliver better outcomes for workers and consumers."
The region has made a lot of progress in the last 30 years, including conquering inflation, stabilizing financial systems and expanding education and safety nets, according to Matias Busso, a lead economist in the research department at the IDB and the editor of the report.
"Despite all this progress, growth has remained low," Busso said, pointing to the importance of competition. "When firms face competitive pressure, they will reduce prices, they will increase the quantities they produce, they will pay their workers higher wages, and they will innovate more."
Highlighting that point, the report shows that for similar production costs, consumers in Latin America and the Caribbean pay about 15% more than their advanced economy peers, while take-home salary is comparatively lower.
FRAGMENTATION, REGULATION CONSTRAINING COMPANIES
The report acknowledges that correcting market distortions is not a simple task. "Competition doesn't happen by accident," it said, adding that governments "can help create more competitive markets with better infrastructure, with smarter regulations and with stronger institutions."
A major factor, they said, is fragmentation. Many cities and regions suffer from poor connectivity, high logistics costs and limited access to labor markets, which keep companies small and insulated.
Regulation reinforces these constraints, according to the report. The IDB said that many rules act as high barriers to entry, discouraging entrepreneurs and encouraging firms to stay small to avoid compliance thresholds. Busso said this dynamic helps produce the region's "missing middle," a lack of midsized firms that, in other economies, pressure incumbents to cut prices and innovate.
Institutional weaknesses further limit competition, with related agencies in the region typically having far smaller budgets and staff than their peers in advanced economies, and limited independence. Busso said agencies must be able to intervene "when regulations are being designed, not only afterward."
(Reporting by Rodrigo Campos in New York; Editing by Paul Simao)
