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Regulation, productivity, and growth : OECD evidence

Author

Listed:
  • Nicoletti, Giuseppe
  • Scarpetta, Stefano
Abstract
The authors look at differences in the scope and depth of pro-competitive regulatory reforms and privatization policies as a possible source of cross-country dispersion in growth outcomes. They suggest that, despite extensive liberalization and privatization in the OECD area, the cross-country variation of regulatory settings has increased in recent years, lining up with the increasing dispersion in growth. The authors then investigate empirically the regulation-growth link using data that cover a large set of manufacturing and service industries in OECD countries over the past two decades and focusing on multifactor productivity (MFP), which plays a crucial role in GDP growth and accounts for a significant share of its cross-country variance. Regressing MFP on both economywide indicators of regulation and privatization and industry-level indicators of entry liberalization, the authors find evidence that reforms promoting private governance and competition (where these are viable) tend to boost productivity. In manufacturing the gains to be expected from lower entry barriers are greater the further a given country is from the technology leader. So, regulation limiting entry may hinder the adoption of existing technologies, possibly by reducing competitive pressures, technology spillovers, or the entry of new high technology firms. At the same time, both privatization and entry liberalization are estimated to have a positive impact on productivity in all sectors. These results offer an interpretation to the observed recent differences in growth patterns across OECD countries, in particular between large continental European economies and the United States. Strict product market regulations-and lack of regulatory reforms-are likely to underlie the relatively poorer productivity performance of some European countries, especially in those industries where Europe has accumulated a technology gap (such as information and communication technology-related industries). These results also offer useful insights for non-OECD countries. In particular, they point to the potential benefits of regulatory reforms and privatization, especially in those countries with large technology gaps and strict regulatory settings that curb incentives to adopt new technologies.

Suggested Citation

  • Nicoletti, Giuseppe & Scarpetta, Stefano, 2003. "Regulation, productivity, and growth : OECD evidence," Policy Research Working Paper Series 2944, The World Bank.
    • Handle: RePEc:wbk:wbrwps:2944
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    More about this item

    Keywords

    Labor Policies; Public Health Promotion; Health Monitoring&Evaluation; Environmental Economics&Policies; Economic Theory&Research; Governance Indicators; Environmental Economics&Policies; Economic Theory&Research; Health Monitoring&Evaluation; Health Economics&Finance;
    All these keywords.

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • K23 - Law and Economics - - Regulation and Business Law - - - Regulated Industries and Administrative Law
    • L16 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Industrial Organization and Macroeconomics; Macroeconomic Industrial Structure
    • L33 - Industrial Organization - - Nonprofit Organizations and Public Enterprise - - - Comparison of Public and Private Enterprise and Nonprofit Institutions; Privatization; Contracting Out
    • L5 - Industrial Organization - - Regulation and Industrial Policy
    • O4 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity

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