Regulation and Economic Growth: Evidence from British Columbia’s Experiment in Regulatory Budgeting

Abstract

We exploit a quasi-natural experiment to identify the effect of regulatory accumulation on economic growth. Following a decade of poor economic growth, the Canadian province of British Columbia implemented a regulatory budget in 2001. We use a difference-in-differences strategy to estimate the effect of this policy intervention, finding that British Columbia’s growth rate increased by about 25 percent relative to other provinces. We also present a set of regressions that, using data from the RegData project, directly account for changes to the stock of regulations as a possible determinant of economic growth. We find that regulatory budgeting, as implemented in British Columbia, is associated with much-improved economic performance. A 1 percent increase in the stock of regulations is associated with a 0.028 percent decrease in year-to-year economic growth. This finding implies that British Columbia’s regulatory budget experiment, through reducing the quantity of regulations by about 36 percent, positively affected year-to-year growth by approximately 1 percentage point.