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Political Economy Factors Affecting Efficient Functioning of Markets

Working paper

Working paper

The potential benefits of a competitive market environment for stimulating economic efficiency, innovation, greater productivity and economic growth are now widely recognised. Competition policy and law plays an important role in disciplining businesses, preventing unfair business practices, and creating a level playing field between firms, which are all important for attracting investment and developing the private sector. However, political economy factors act as a major obstacle for undertaking reforms to ensure a healthy competition regime. Political economy barriers refer to the constraints due to conflicts of interest between different agents in the economy and the need for the state to make collective choices in the face of these conflicts. This issue of Commonwealth Trade Hot Topics, drawing upon findings from case studies of various sectors in different countries, summarises the key lessons learned with respect to how political economy factors can affect efficient functioning of markets even in the presence of liberalised trade regimes and the role of competition policy in dealing with such a problem.

Karen Ellis