Competition and the regulation of economic development

This paper explores the idea that the competitive process is central to a process of economic development and that it underpins the self-transformation of economic systems and thus structural change. Innovation plays a key role in the competitive process and links economic development to enterprise and the growth of knowledge in general. In this view, competition is an evolutionary process, the dynamics of which depend on processes of variation and selection. A scheme for accounting for evolutionary growth that incorporates structural change and the entry and exit of activities is outlined and used to explore Price's theorem in evolutionary dynamics. In the final part of the paper, we discuss the problems of the anti-trust approach to competition policy in developing countries. We argue that the most plausible competition policy is a pro-innovation policy in which markets are open to entry and enforce exit and in which abnormal profits and losses are the norm. © 2005 Board of Trustees of the University of Illinois. All rights reserved.