Product Market Regulation Research Articles

The Interest Group Theory of Financial Development: Evidence from Regulation

We use a new dataset of de jure measures of trade, capital account, product market, and domestic financial regulation for 91 countries from 1973 to 2005 to test Rajan and Zingales’s (2003) interest group theory of financial development. In line with the theory, we find strong evidence that trade liberalization is a leading indicator of domestic financial liberalization. This result is robust to the use of different data frequencies (annual, 5-year intervals), estimation methods (OLS, 2SLS, system GMM) and a check for non-linear effects. However, in contrast to the theory, we do not find consistent evidence of an effect of capital account liberalization.

Financialization and productive models in the pharmaceutical industry

This study analyzes the effects of financialization and competition on productive models in major pharmaceutical and biopharmaceutical companies and discusses current theses, which may help explain the transformation of productive models occurring under growing pressure from institutional investors and shareholder value management. We provide evidence of a large dispersion of shareholding and an increase in distribution of shareholder value occurring through large pharmaceutical companies. We show that large pharmaceutical companies have adopted a blockbuster model in an effort to maximize shareholder value, which is explained by various factors including financialization, technical change, product market regulations, and market competition. The stock market is used to make large acquisitions and control the US drug market, creating a growing dependency on stock performance and blockbuster drug sales. We describe how the process of financialization has impacted the biopharmaceutical industry and argue that the blockbuster model as a dominant productive model for the industry since the 1990s is unsustainable.

The Euro Crisis: Mission Accomplished?

The Euro Crisis: Mission Accomplished?

Trade and product market policies in upstream sectors and productivity in downstream sectors: Firm-level evidence from China

This paper explores the heterogeneous productivity impact of trade, product market and financial market policies over the last decade in China. The paper makes a critical distinction between downstream and upstream industries, focusing on the indirect effects of regulation in upstream industries on firm performance in downstream manufacturing industries. We identify the differential effect of these policies on firm productivity growth depending on how far incumbents are relative to the technological frontier. Trade and product market reforms are found to deliver stronger gains for firms that are closer to the industry-level technological frontier, while the reverse holds for financial market reforms. The key conclusion that can be derived from the empirical analysis is that further product, trade and financial market reforms would bring substantial gains in China and could therefore speed up the convergence process. Taken at face value, the empirical estimates would imply that aligning product, trade and financial market regulation to the average level observed in OECD countries would bring aggregate manufacturing productivity gains of respectively 9%, 3% and 6.5% after 5years.

Relationship between Some Indicators of Business Environment: Evidence from the European Union

 Abstract—Presented paper deals with possible relationships between some indicators of business environment among the selected European Union Member States. The main observed indicators were Employment protection legislation, Product market regulation and Ease of doing business. First, these measurements of business regulation were compared (reference year 2008). Empirical results showed that favorable level of business regulation existed in United Kingdom and Ireland. Second, non-parametrical approach was applied. Values of Spearmans rank correlation coefficient suggested that there existed positive correlation between individual rankings, especially between Product market regulation and Ease of doing business.

The Impact of Market Regulations on Intra-European Real Exchange Rates

We study the contribution of market regulations in the dynamics of the real exchange rate within the European Union. Based on a model proposed by De Gregorio et al. (1994a), we show that both product market regulations in nontradable sectors and employment protection tend to inflate the real exchange rate. We then carry out an econometric estimation for European countries over 1985-2006 to quantify the contributions of the pure Balassa-Samuelson effect and those of market regulations in real exchange-rate variations. Based on this evidence and on a counter-factual experiment, we conclude that the relative evolution of product market regulations and employment protection across countries play a very significant role in real exchange-rate variations within the European Union and especially within the Euro area, through theirs impacts on the relative price of nontradable goods.

Upstream Product Market Regulations, ICT, R&D and Productivity

Our study aims at assessing the actual importance of the two main channels usually contemplated in the literature through which upstream sector anticompetitive regulations may impact productivity growth: business investments in R&D and in ICT. We thus precisely try to estimate what are the specific impacts of these two channels and their shares in total impact as against alternative channels of investments in other forms of intangible capital such as improvements in skills, management and organization. For this, we specify an extended production function relating productivity explicitly to R&D and ICT capital as well as to upstream regulations, and two factor demand functions relating R&D and ICT capital to upstream regulations. These relations are estimated on a panel of 14 OECD countries and 13 industries over the period 1987-2007. Our estimates confirm the results of previous similar studies finding that the impact of upstream regulations on total factor productivity can be sizeable, and they provide evidence that a good part of the total impact, though not a predominant one, goes through both investments in ICT and R&D, and particularly the latter.

Environmental Policies, Product Market Regulation and Innovation in Renewable Energy

We investigate the effectiveness of policies in favor of innovation in renewable energy under different levels of competition. Using information regarding renewable energy policies, product market regulation and high-quality green patents for OECD countries since the late 1970s, we develop a pre-sample mean count-data econometric specification that also accounts for the endogeneity of policies. We found that renewable energy policies are significantly more effective in fostering green innovation in countries with deregulated energy markets. We also found that public support for renewable energy is crucial only in the generation of high-quality green patents, whereas competition enhances the generation of green patents irrespective of their quality.

Deregulation shock in product market and unemployment

In a dynamic general equilibrium model with endogenous markups and labor market frictions, we investigate the effects of increased product market competition. Unlike most macroeconomic models of search, we endogenize the labor supply along the extensive margin. We find numerically that a model with endogenous labor force participation decision produces a decline in the unemployment rate which is almost three times larger than that in a model with fixed labor force. For a calibration capturing alternatively the European and the US labor markets, a deregulation episode, which lowers the markup by 3 percentage points, results in a fall in the unemployment rate by 0.17 and 0.05 percentage point, respectively, while the labor share is almost unaffected in the long-run. The sensitivity analysis reveals that product market deregulation is more effective in countries where product and labor market regulations are high, unemployment benefits are small and labor force is more responsive.

The interest group theory of financial development: Evidence from regulation

We use a new dataset of de jure measures of trade, capital account, product market, and domestic financial regulation for 91 countries from 1973 to 2005 to test Rajan and Zingales’s (2003) interest group theory of financial development. In line with the theory, we find strong evidence that trade liberalization is a leading indicator of domestic financial liberalization. This result is robust to the use of different data frequencies (annual, 5-year intervals), estimation methods (OLS, 2SLS, system GMM) and a check for non-linear effects. However, in contrast to the theory, we do not find consistent evidence of an effect of capital account liberalization.

The limits of Liberalization? American capitalism at the crossroads

From the 1930s to 1970s the United States (US) model of capitalism was based on a Keynesian growth model. Collective bargaining and pro-labour policies were widely accepted. Product market regulation was fairly extensive. Industrial policy in the US was less overt than in other advanced economies, but quite extensive in certain sectors. By the late 1990s the US model had clearly coalesced around a new set of institutions based on a different set of complementarities: deregulated labour markets combined with shareholder-oriented finance and corporate governance to produce a system with highly flexible allocation of productive resources marked by high levels of financialization. This contribution explains this transformation as a combination of three variables: structural features of the US economy; the fragmented institutional character of US policy-making and regulation; and policy convergence between left and right.

International Capital Mobility and Financial Fragility - Part 3: How Do Structural Policies Affect Financial Crisis Risk? Evidence from Past Crises Across OECD and Emerging Economies

This paper examines how structural policies can influence a country's risk of suffering financial turmoil. Using a panel of 184 developed and emerging economies from 1970 to 2009, the empirical analysis examines which structural policies can affect financial stability by either shaping the financial account structure, by reducing the risk of international financial contagion, or by directly reducing the risk of financial crises. Differentiated capital controls are found to affect financial stability via the structure of the financial account. Moreover, a number of structural policies including regulatory burdens on foreign direct investment, strict product market regulation, or tax systems which favour debt over equity finance are found to bias external financing towards debt, thereby increasing financial crisis risk. By contrast, more stringent domestic capital adequacy requirements for banks, greater reliance of a domestic banking system on deposits, controls on credit market inflows, and openness to foreign bank entry are found to reduce the vulnerability to financial contagion. Finally, vulnerability to international bank balance-sheet shocks is found to be lower in situations of abundant global liquidity, underlining the importance of adequate central bank reactions in situations of financial turmoil. Flux de capitaux internationaux et fragilite financiere : Partie 3. Comment les politiques structurelles affectent-elles la probabilite de crise financiere? Analyse empirique des crises financieres passees des pays OCDE et emergents Cet article examine comment les politiques structurelles peuvent influencer le risque de crise financiere. L’analyse empirique porte sur un echantillon de 184 pays developpes et emergents de 1970 a 2009 et teste quelles politiques structurelles peuvent favoriser la stabilite financiere, soit en influant sur la structure du compte financier, soit en reduisant les risques de contagion financiere internationale, soit en reduisant directement le risque de crise financiere. Des mesures ciblees de controle des flux de capitaux ont influe sur la stabilite financiere en modifiant la structure des engagements internationaux. De plus, de nombreuses politiques structurelles, comme les restrictions trop importantes aux investissements directs etrangers, une reglementation des marches de produits defavorable a la competition, ou des systemes de taxation favorisant le financement par la dette au detriment des investissements de capitaux, ont contribue a reduire la stabilite financiere en augmentant la part de la dette dans les engagements externes des pays au detriment des IDEs ou des investissements de capitaux. En revanche, une meilleure reglementation des fonds propres bancaires, un ratio credits sur depots bancaires plus faible et une plus grande ouverture a l’entree des banques etrangeres ont reduit les risques de crises financieres lors des episodes de contagion bancaire. Enfin, la vulnerabilite des pays a la contagion par le systeme bancaire international a ete moindre lorsque la liquidite globale etait abondante, ce qui souligne l’importance d’une reaction appropriee des banques centrales lors des periodes d’instabilite financiere.

Defensive strategies in quality ladders

This paper analyses the potentially defensive behaviour of patent-race winners and the ensuing effect on aggregate R&D effort. We propose a quality-ladder model where leaders strategically acquire a technology advantage and are able to innovate. In this context, product-market regulation, by affecting this strategic behaviour, may have either a positive or negative effect on aggregate R&D intensity. The negative effect is likely to pertain in liberal markets, whereas the positive influence arises in more regulated environments, and can be stronger for larger jumps in innovation. These steady-state equilibrium outcomes are consistent with the puzzling patterns in data from manufacturing industries in 14 OECD countries over the 1987–2003 period.

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, trend inflation and inflation dynamics in the new Keynesian Phillips curve

In this empirical paper, we take a close look at the impact of the observed decline in the product market regulation, and hence in the barriers to entry and in impediments to competition, on inflation dynamics since the early 1980s.We use an enlarged new Keynesian Phillips curve (NKPC) allowing for entry of firms and increasing competitive pressures with the number of firms and non zero trend inflation.Using OECD indicators on product market regulations, characterized by persistent fluctuations, and taking into account the non stationary properties of the inflation process, we investigate the empirical relevance of this NKPC for inflation dynamics in the US and France, assuming VAR expectations. The results point out that product market regulation is a good candidate as an exogenous structural source of the observed persistence in inflation for the past thirty years in both the US and France.

Accounting Choice in Price-Regulated Industries – Unintended Consequences?

This paper empirically investigates the interplay of price regulation on the product market and accounting choices. Specifically, we analyze the impact of regulated prices in the German utility sector on the decision to adopt a new accounting regulation one year in advance of the otherwise mandated adoption. This article finds that regulated firms are more likely than non-regulated firms to adopt the new accounting regulation early, thereby achieving higher regulated revenues. Manually analyzing financial statements, we are able to estimate the increase in firm-specific allowed revenues for the regulation period of 2013-2017. This article contributes to the literature by shedding light on the link of industry-specific product market regulation and managers’ accounting choices.

Bajos salarios en cinco países europeos y los EE.UU.: el papel de las instituciones nacionales

This paper is devoted to the analysis of the differences in the share of low wage work in six countries. The main differences are related with the set of institutions that influence the regulation of labour markets. It is emphasized the role of collective bargaining, minimum wages, product market regulations and welfare systems.

La construcción de las desigualdades salariales en la industria agroalimentaria

La construcción de las desigualdades salariales en la industria agroalimentaria

Determinants of Inflation in the Euro Area: The Role of Labor and Product Market Institutions

While inflation differentials in a monetary union can be benign, reflecting a catch-up process, or an adjustment mechanism to asymmetric shocks or different business cycles, they may also indicate distortions related to inefficiencies in domestic product and labor markets that amplify or make more persistent the impact of shocks on inflation. The paper examines the determinants of inflation differentials in the euro area, with emphasis on the role of country specific labor and product market institutions. The analysis uses a traditional backward-looking Phillips curve equation and augments it to explore the role of collective bargaining systems, union density, employment protection, and product market regulation. The model is estimated over a panel dataset of 10 euro area countries over the period 1983-2007. Results show that high employment protection, intermediate coordination of collective bargaining, and high union density increase the persistence of inflation. Oil and raw materials price shocks are also more likely to be accommodated by wage increases when the degree of coordination in collective bargaining is intermediate. These results are robust to different estimation methods, model specifications, and outliers. The paper suggests that reforming labor market institutions may improve the functioning of the euro area by reducing the risk of persistent inflation differentials.

Determinants of Inflation in the Euro Area: The Role of Labor and Product Market Institutions

While inflation differentials in a monetary union can be benign, reflecting a catch-up process, or an adjustment mechanism to asymmetric shocks or different business cycles, they may also indicate distortions related to inefficiencies in domestic product and labor markets that amplify or make more persistent the impact of shocks on inflation. The paper examines the determinants of inflation differentials in the euro area, with emphasis on the role of country specific labor and product market institutions. The analysis uses a traditional backward-looking Phillips curve equation and augments it to explore the role of collective bargaining systems, union density, employment protection, and product market regulation. The model is estimated over a panel dataset of 10 euro area countries over the period 1983-2007. Results show that high employment protection, intermediate coordination of collective bargaining, and high union density increase the persistence of inflation. Oil and raw materials price shocks are also more likely to be accommodated by wage increases when the degree of coordination in collective bargaining is intermediate. These results are robust to different estimation methods, model specifications, and outliers. The paper suggests that reforming labor market institutions may improve the functioning of the euro area by reducing the risk of persistent inflation differentials.