Competitiveness, productivity, competition and structural reforms: The Belgian case

Abstract

Belgian competitiveness with respect to its neighbouring countries is being hampered by growth in hourly wages that is insufficiently compensated by productivity growth. In particular total factor productivity (TFP) growth falls behind that of its neighbours. Among the determinants of TFP growth, competition conditions might play an important role and may be interesting from a policy point-of-view, as improving these conditions is generally not budgetary hurting. This article explores the measurement of competition conditions by analysing five methods that are put forward by the economic literature. The methods concern price-cost margins, entry & exit, market concentration, market stability and profit sensitivity. Each has its limitations, both from a theoretical and a data perspective, but still serves as a proxy of the underlying intensity and evolution of competition. The outcomes indicate that Belgium performs worse than (three methods) or at most as good as (two methods) the average of other EU Member States, but certainly not better. Still, the intensity of competition may have improved somewhat. Although the article does not analyse a statistical relationship between competition and TFP growth, the outcomes suggest that the weak performance of TFP could be caused by weak competition conditions. © De Boeck Université.