Page 39 - Azerbaijan State University of Economics

THE ROLE OF COMPETITION ADVOCACY IN TRANSITION AND DEVELOPING ECONOMIES

private sector of the economy or may prove disadvantageous to achieve

an environmental goal.
Like restrictive trade practices, state aids are addressed in many

international agreements, including the General Agreement on Tariffs
and Trade (GATT) as part of the regulations of the World Trade

Organization (WTO) and several regional integration and trade

agreements. Nevertheless, almost all governments continue to employ
state aids in some form, and the practice is likely to be more widespread

in transition and developing economies, as those governments strive
either to make their domestic industries competitive in the world

economy or to protect them from more efficient foreign competitors. The

experience across countries suggests that these types of policy measures
rarely yield successful results, however. They tend to dampen firms'

incentives to become efficient. They foster rent-seeking behavior and
give rise to high levels of ownership and market concentration – a

phenomenon particularly observable in transition and developing
economies. Moreover, governments are notoriously poor predictors of

market developments, and the adopted strategies soon become costly in

several ways. In addition to resulting in various inefficiencies, these
practices contribute to fiscal deficits and the development of

anticompetitive practices.
The competition agency can act to improve public awareness of

the issue and in particular to promote understanding of when certain
forms of state aid might be appropriate in addressing specific problems

that arise in the transition period. Thus temporary and specific state aids

might be appropriate in connection with implementation of restructuring
programs in disadvantaged regions and sectors, promotion of research

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