Increasing Competition Could Boost GDP by 11% and Reduce Inequality by 6% in Latin America and the Caribbean, IDB Report Says

WASHINGTON — Latin America and the Caribbean could raise GDP per capita by 11% and reduce inequality by 6% by making markets more competitive, according to a new report by the Inter-American Development Bank (IDB).

The flagship report, “Markets for Development: Improving Lives through Competition,” shows that limited competition and high market concentration across the region’s economies weakens growth, suppresses wages, and keeps firms small and informal. Drawing on a new cross-country dataset of competition indicators, the study finds that stronger, fairer markets are critical to unlocking productivity and opportunity. 

“The report demonstrates that markets are not merely a contextual element in development; they play an active role in driving it,” said IDB Group President Ilan Goldfajn. “When competition works, the private sector can do what it does best — create jobs, boost innovation, and deliver better outcomes for workers and consumers. Stronger, fairer markets are key to unlocking Latin America and the Caribbean’s full potential.” 

The report was launched today at the IDB’s headquarters in Washington, as part of its “Development in the Americas” (DIA) report series. Drawing on new evidence — including a new IDB database of comparable competition indicators across countries and sectors — it shows how bold, well-designed policies can deliver real gains for consumers, workers, and businesses in sectors such as telecommunications, banking, and health.

The key findings include:

• Market concentration in Latin America and the Caribbean is four times higher than in advanced economies.
• Firms in the region charge markups averaging 35% above cost, compared to 20% in more competitive markets.
• Workers take home just 50% of the value they generate — versus 65% in the United States and 81% in other advanced economies.
• Ninety-five percent of firms have fewer than five workers and account for 57% of employment. The most productive firms — those with more than 50 employees — make up just 1% of firms and account for 20% of jobs.
• If labor markets were as competitive as in advanced economies, GDP per capita could increase by as much as 25% — driven by higher investment and production, more efficient resource allocation, and workers moving to better jobs with fairer wages.

“At the IDB, we are committed to leading with rigorous, evidence-based research to help countries implement reforms that deliver real impact for people and businesses,” said Laura Alfaro Maykall, chief economist and economic counselor at the IDB. “With this flagship report, we are equipping policymakers and researchers with the data needed to design smarter policies that foster innovation, fair wages, and sustainable growth.”

The report cites successful pro-competition reforms already underway:

• Telecom number portability has expanded access and costs have decreased.
• Digital payment systems have reduced transaction barriers for firms and consumers.
• Loan portability has increased credit options and lowered interest-rate spreads.
• Public-procurement reforms have driven down prices for essential goods, such as insulin.

To scale these gains, the report outlines three priorities for governments:

1. Reduce market fragmentation by improving infrastructure, harmonizing rules, facilitating interoperability of systems, and easing border processes so firms can grow and connect within borders and to global value chains.
2. Design smarter regulations by removing rules that keep businesses small and by creating fair, evidence-based policies that address market failures while also encouraging growth.
3. Strengthen competition agencies by giving them more independence, resources, and authority to deter anticompetitive behavior and promote fair economies.

Successful reforms require more than laws. They demand investment in state capacity, credible enforcement through independent courts and autonomous agencies, and stable political institutions to prevent backsliding, the report notes.