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