Competition and Productivity: Evidence from Peruvian Municipalities

Abstract This paper uses new data on the removal of local, sector-specific barriers to firm entry across 1,800 municipalities in Peru to estimate the impact on firm productivity and markups. New legislation in 2013 strengthened the national competition authority's mandate to enforce the elimination of local entry barriers, providing a quasi-experimental setting to identify the impact of competition on productivity within the controlled institutional environment of a single country. We find that the elimination of local entry barriers boosted productivity, pointing to the critical role of subnational market entry barriers in explaining countries' laggard productivity performances despite liberalized national regulatory environments.