Product market regulation and productivity convergence

Abstract

In this article we investigate the effect of product market regulation on the international diffusion of productivity shocks. The results indicate that regulations that restrict competition slow the process of adjustment through which best practice production techniques diffuse across borders and new technologies are incorporated into the production process. This effect is reflected in cross-country differences in ICT investment and speeds of catch up of sectoral productivity, which are significantly influenced by differences in product market regulation. Thus, persisting cross-country differences in product market regulation can partially explain the recent observed divergence of labour productivity in OECD countries, given the emergence of new general purpose technologies over the 1990s. In the case of Canada, the results suggest that remaining regulatory barriers to competition in a few key non-manufacturing sectors may have prevented the economy from benefiting to the full extent from high productivity growth rates in the United States and other productivity leaders.ONE OF THE ECONOMIC PARADOXES of the past decade was that GDP per capita diverged across OECD countries even as policies converged in many areas, such as macroeconomic stabilization and product market regulation.The paradox was particularly striking in productivity performance across countries, the major driver of divergence in GDP per capita. This article argues that it is not only institutions and policies per se that mattered for explaining the productivity episodes from the late-1990s, but also the relationship between the

Product and Labour Market Regulations, Production Prices, Wages and Productivity

“…They are based on detailed information on laws, rules, market and industry settings and cover energy (gas and electricity), transport (rail, road and air) and communication (post, fixed and cellular telecommunications), retail distribution and professional services (see Conway and Nicoletti, 2007, for a more detailed presentation).…”

Regulation, trade and economic growth

“…The effect of financial market regulation on economic growth has been of interest from the late 1990s, for example by Rajan and Zingales (1998) and Beck et al (2005). Recent empirical studies on the effects of product market and labor regulation on economic growth, productivity, investment and innovation include , , Nicoletti and Scarpetta (2003), Aghion et al (2004), Gust and Marquez (2004), Besley and Burgess (2004), Klapper et al (2004), Botero et al (2004), Crafts (2006), Conway et al (2006), Micco and Pagés (2006), Klapper et al (2006), Viviano (2008), Poschke (2010), Bourlès et al (2010) and Buccirossi et al (2013). that countries with low-quality institutions (bottom 20 or 30 per cent) cannot reap the benefits of increase trade, with regulatory quality (e.g., labor market, market entry and tax system efficiency/tax level) playing a more important role than good governance.…”

Regulations and productivity: Long run effects and nonlinear influences

“…This index can be used as a measure for the economy wide regulatory environment, since it includes sectors in which much anti-competitive regulation is concentrated (Conway et al 2006). Also, services produced in these sectors constitute an essential input for most sectors of the rest part of the economy and therefore regulatory provisions in these industries affect the cost of production and aggregate level productivity performance.…”