Effects Of Product Market Regulation Research Articles

The trade effects of product market regulation in global value chains: evidence from OECD and BRICS countries between 2000 and 2015

Global Value Chains (GVC) have reshaped the landscape of international trade. The quality and intensity of regulation significantly impacts firms' competitiveness and their ability to engage in GVC. Economic literature suggests that regulation of product market competition has a detrimental effect on trade by decreasing productivity, innovation, and economic growth. This paper expands existing knowledge on this relationship by examining the influence of product market regulation (PMR) on value-added trade flows in an augmented gravity model. We constructed a data panel with trade data from 40 OECD and BRICS countries in the period from 2000 to 2015 and combined it with an extensive multi-level indicator set on PMR developed by the OECD. By disentangling the PMR indicators, we account for the heterogeneity of regulation and potential different trade effects. Overall, our evidence suggests that PMR has a negative impact on trade. Further, our results indicate that the negative impact stems largely from barriers to trade and investment. For the BRICS, our results suggest the contrary: We observed an overall positive trade effect of PMR, mainly driven by barriers to trade and investment. Our results support identifying policy areas in which regulatory reform can improve the integration in GVC and emphasize different approaches to economic policy, particularly in emerging economies such as the BRICS. Moreover, the results underline the detrimental effects of increasing protectionism and tariff hikes, a phenomenon that we increasingly observe in recent years from the world’s largest economies, such as the United States and China.

Product Market Regulation and Labor Market Performance around the World

AbstractUsing annual data on 80 countries for 1980–2007 and a new indicator of product market regulation, this paper studies the effects of product market regulation on labor market performance among the total population as well as among two important groups of labor market outsiders: women and youth. It finds that stricter regulation is likely to both increase the unemployment rate and decrease the employment rate. The magnitude of the estimated effects is substantial. There are above‐average effects on both groups of outsiders, with the effects being particularly strong on youth. The results are robust to variations in specification.

PRODUCT MARKET REGULATION, FIRM SELECTION, AND UNEMPLOYMENT

This paper analyzes the effect of product market regulation (PMR) on unemployment in a search model with heterogeneous multiple-worker firms. In our setup, PMR modifies the distribution of firm productivities, thereby affecting the equilibrium rate of unemployment. We distinguish between PMR related to entry costs and PMR that generates recurrent fixed costs. We find that: (i) higher entry costs raise the rate of unemployment mainly through our novel selection effect, (ii) higher fixed costs decrease unemployment through the selection effect and increase it through the competition effect analyzed in Blanchard and Giavazzi (2003, Quarterly Journal of Economics, 118, 879–907). Firm heterogeneity magnifies the impact of both types of regulatory costs. We propose econometric evidence consistent with the unemployment effects of sunk versus recurring costs.

Product Market Regulation and Market Work: A Benchmark Analysis

Recent empirical work finds a negative correlation between product market regulation and aggregate employment. We examine the effect of product market regulations on hours worked in a benchmark model of time allocation. Product market regulations affect market work in effectively the same fashion as labor or consumption taxes. For product market regulations to affect aggregate market work, the key driving force is the size of income transfers associated with the regulations, and the key propagation mechanism is the labor supply elasticity. We show that industry level analysis is of little help in assessing the aggregate effects of product market regulation. (JEL E24, J22, L51)

Product Market Regulation and Market Work: A Benchmark Analysis

Recent empirical work finds a negative correlation between product market regulation and aggregate employment. We examine the effect of product market regulations on hours worked in a benchmark aggregate model of time allocation as well as in a standard dynamic model of entry and exit. We find that product market regulations affect time devoted to market work in effectively the same fashion that taxes on labor income or consumption do. In particular, if product market regulations are to affect aggregate market work in this model, the key driving force is the size of income transfers associated with the regulation relative to labor income, and the key propagation mechanism is the labor supply elasticity. We show in a two-sector model that industry-level analysis is of little help in assessing the aggregate effects of product market regulation.

Regulation, Competition and Productivity Convergence

This paper investigates the effect of product market regulations on the international diffusion of productivity shocks. The empirical results indicate that restrictive product market regulations slow the process of adjustment through which best practice production techniques diffuse across borders and new technologies are incorporated into the production process. This suggest that remaining cross-country differences in product market regulation can partially explain the recent observed divergence of productivity in OECD countries, given the emergence of new general-purpose technologies over the 1990s. The paper also investigates two channels through which product market regulations might affect the international diffusion of productivity shocks, namely the adoption of information and communications technology and the location decisions of multi-national enterprises. In both cases the effect of anticompetitive product market regulation is found to be negative and significant.

Product Market Regulation and Macroeconomic Performance: A Review of Cross Country Evidence

The main purpose of this paper is to provide a critical overview of the recent empirical contributions that use cross country data to study the effect of product market regulation and reform on a country's macroeconomic performance. After a brief review of the theoretical literature and of relevant micro-econometric evidence, the paper discusses the main data and methodological issues related to empirical work on this topic. It then critically evaluates the cross country evidence on the effect of product market regulation on mark-ups, firm dynamics, investment, employment, innovation productivity, and output growth. A summary of what we learn from the econometric results concludes the paper.