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This paper investigates the impact of the toughness of competition on the macroeconomic performance of countries. The relation between competition and innovation has been investigated intensely in industrial economics. It started with Schumpeter's hypotheses that monopoly profits were necessary for innovation, leading then to u-curve relationships where innovation was the highest for medium-range of competition, but lower for very tough competition as well as for a very lax competitive regime. Empirical studies on the growth differences between countries increasingly stress − apart from the usual suspects like investment, R&D, human capital − the role of institutions. They include indicators on regulation, government size, corruption and rule of law, but usually not the degree of competition.
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