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Review Paper One: Key Debates in Competition, Capabilities Development and Related Policies - Drawing the Link between Barriers to Entry and Inclusive Growth

With over 20 years in a democratic South Africa, the country still faces serious economic challenges of poverty, inequality and unemployment. In response to these challenges, the need for a higher level of economic growth, combined with a more inclusive approach to sharing the benefits of such growth, are universally acknowledged. Recent literature establishes an important link between growth and development and removing constraints to accessing economic activity, and disciplining the market power of large firms. In this context, inclusive economic growth is also about firms being able to overcome strategic barriers to entry and expansion. The South African experience has been one of high levels of concentration in several key sectors resulting in an economy which largely excludes the majority of the population from ownership of important economic assets. This has deprived the economy of the benefits from increased participation and access to markets, and dynamic rivalry in the form of competition based on innovation, competitive pricing, investment in improved production processes and capabilities, and learning-by-doing. This paper highlights the factors which are critical to facilitating the entry of efficient rivals into traditionally concentrated markets premised on the understanding that investment and innovation emanates from and rests with firms. In this context, government’s role (including its various agencies) should be to facilitate the process by lessening structural and strategic barriers in the economy which restrict the dynamic rivalry introduced by firms that compete on the basis of investments, innovation and developing new processes and capabilities. The paper relates these issues back to the international growth and development literature in order to provide a strong motivation for the relationship between barriers to entry, competition and dynamic efficiency, increased participation in the economy and inclusive growth. This assessment provides the theoretical context for understanding the sector-specific experiences of firms in the sectors which the barriers to entry project will analyse. A second companion review paper working paper no. 5/2015 discusses the literature on competition policy, economic regulation and industrial policy.