Competition and Productivity in Middle East and Central Asia: What Role Do Tariffs Play?

Across much of the Middle East and Central Asia (ME&CA), market competition remains weaker than in other emerging markets, holding back productivity and income growth. Using firm-level data from Orbis for 2002–2021, this paper studies the evolution of market competition in ME&CA economies and examines how trade policy and institutions shape competitive dynamics. We find that market power remains substantial and uneven across ME&CA, with particularly high markups in resource-intensive activities, selected service sectors, and—more recently—manufacturing in the Caucasus and Central Asia (CCA). Higher tariff protection is systematically associated with faster growth in markups, indicating that trade barriers weaken competitive pressure, while improvements in competition policy, anti-corruption frameworks, and property rights are linked to declining market power and hence increasing competition. Although productivity gaps remain large and persistent, stronger competition is associated with faster firm-level productivity growth and higher GDP per capita growth, with these effects particularly pronounced in CCA economies. Overall, the findings highlight the importance of policies aimed at reducing trade barriers and strengthening institutional and competition policy frameworks to foster competition, raise productivity, and support long-term income growth in the ME&CA region.