Democracy and Consumer Strength: Direct Evidence from Regulatory Reform in Developing Countries

Abstract

The distributional implications of antitrust regulation imply a political cleavage between consumers and producers. I argue that the relative strength of these two groups depends on the level of democracy. In particular, an expansion of the franchise and competitive elections will increase the relative political weight of consumers, resulting in policies that favors their interests. An empirical implication of the argument is that the likelihood of effective competition policy reform increases with democracy. I test this proposition in two stages using an original dataset measuring competition agency design in 156 developing countries covering the period 1975-2007. First, I estimate hazard models on the timing of competition policy reform. Second, since “laws on the books” do not necessarily indicate a commitment to effective policy, I create an original index measuring governments’ commitments to antitrust policy. The index captures the independence of the agency, resource (budget and staffing) allocations, expert perceptions, and actual legal actions. The results of the empirical analysis support the proposition that democracy improves governments’ commitments to competition policy.