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Wiley InterScience | |||||||||||||||
  Economic PolicyVolume 18 Issue 36, Pages 9 - 72 Published Online: 31 Mar 2003 © 2010 Centre for Economic Policy Research, Center for Economic Studies, Maison des Sciences de l'Homme
Abstract | References | Full Text: HTML, PDF (Size: 1774K) | Related Articles | Citation Tracking  Regulation, productivity and growth: OECD evidence Box 1. Using MFP growth as a proxy for technological progress Direct data on technical progress are impossible to obtain on an economy-wide basis. In lieu of direct data, economists estimate a proxy for technical progress from data on outputs and inputs. The basic idea is that any output growth that is not accompanied by a growth in inputs must be due to a more efficient use of the inputs, that is to say, it must be due to productivity growth. Such calculations must inevitably confront a series of practical problems – What weights should be assigned to the various inputs? Should the hours of skilled and unskilled workers be lumped together? etc. (Data construction details are in the Appendix.) Our MFP measure is no exception, so one should be mindful of the fact that MFP is not a perfect measure, and that it is constructed from the data (this poses statistical problems in Section 4). Nevertheless, using such measures is absolutely standard practice. There really is no better way to measure economy-wide productivity. Note that multifactor productivity is also known as total factor productivity (TFP). Box 2. Differentiating anticompetitive regulations across industries We treated barriers to entry in manufacturing and non-manufacturing industries differently, reflecting structural differences between the two sectors. In non-manufacturing, we cover mainly legal and structural barriers such as restrictive licensing, restrictions on the establishment of foreign companies, legal monopoly (or duopoly), and vertical integration or lack of third-party access in network industries. In manufacturing industries, we assumed that relevant barriers included only administrative burdens and tariff and non-tariff barriers to trade. Clearly, the range of industry-specific regulations that may affect product market competition in manufacturing industries is wider (including, for instance, technical or quality standards, intellectual property rights and antitrust exemptions). However, cross-country information on these regulations is hard to find, and their impact on competition is often difficult to assess.
Copyright © CEPR, CES, MSH, 2003. SUMMARY
Liberalization and privatization have made the regulatory environment more market-friendly throughout the OECD. However using a large new dataset on product market regulation, we show that regulatory policies in OECD nations have become more dissimilar in relative terms, even as all nations have liberalized. This seemingly contradictory finding is explained by different starting points and different reform speeds. Our data also show that this divergence in the regulatory settings lines up with the divergent growth performance of OECD nations, in particular the poor performance of large Continental economies relative to that of the US. The data, which tracks various types of product market regulation in manufacturing and service industries for 18 OECD economies over the past two decades, allows us to explore this link in detail. We find that productivity growth is boosted by reforms that promote private corporate governance and competition (where these are viable). Moreover, our detailed findings suggest how product market regulation and productivity growth are linked. In manufacturing, the productivity gains from liberalization are greater the further a given country is from the technology leader. This indicates that entry-limiting regulation may hinder the adoption of existing technologies, possibly by reducing competitive pressures, technology spillovers, or the entry of new high-tech firms. These results offer an interpretation of poor Continental performance. Strict product market regulations – and lack of regulatory reforms – appear to underlie the meagre productivity performance of some European countries, especially in those industries where Europe has accumulated a technology gap (e.g. industries producing or using information and communication technologies). — Giuseppe Nicoletti and Stefano Scarpetta | 
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