Competition Policy and Corporate Labor Investment Efficiency: Evidence From China

Competition policy plays an important role in maintaining market competition. However, its effectiveness is not yet well understood, particularly in developing countries. China's Fair Competition Review System (FCRS) shifts the focus from correcting monopolies after the fact to preventing anti-competitive policies in advance. This approach effectively lowers administrative monopolies, thus reducing inefficient labor investments. We investigate how competition policy affects firm efficiency in developing countries, where administrative monopolies are widespread. Because labor investment efficiency is highly sensitive to regional administrative monopolies, we use it as our central outcome. Leveraging the FCRS as a quasi-natural experiment, we show that competition policy significantly improves firms' labor investment efficiency in regions with higher levels of administrative monopoly. Further analysis indicates that competition policy enhances firm efficiency by increasing market competition and reducing firms' environmental uncertainty. The effects are especially strong in state-owned enterprises. Overall, our findings underscore that managing administrative monopolies is crucial for improving labor investment efficiency.