Public policy reforms and their impact on productivity, investment and employment: new evidence from OECD and non-OECD countries

Égert, Balázs

doi:10.3326/pse.46.2.1.

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Public policy reforms and their impact on productivity, investment and employment: new evidence from OECD and non-OECD countries

Balázs Égert*

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https://doi.org/10.3326/pse.46.2.1

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Table 1
Overview of indicators used in the regression analysis by main policy and outcome areas

	Source	Country coverage	Time coverage
Product market regulation
Overall	OECD Product market regulation Indicators database	Around 60	Every five years, only one observation for about 15 countries
Barriers to entry
Barriers to trade & investment
Scope of state control
General business sector regulation
Business regulation	Fraser Institute	More than 100 countries	Annual, about 10 years
Cost of contract enforcement	World Bank Doing Business Indicators	More than 100 countries	Annual, about 10 years
Time of contract enforcement
Cost of insolvency procedures
Time of insolvency procedures
Cost of starting a business
Time of starting a business
Labour market regulation
EPL regular contracts	OECD	Around 60 countries, 10 countries different than for PMR	Annual, 30 years, only one observation for about 15 countries
Labour market regulation	Fraser Institute	More than 100 countries	Annual, about 10 years
EPL regular contracts	Cambridge	117 countries	Annual, 40 years
Institutions
Legal system	Fraser Institute	Around 100 countries	Annual, about 10 years
Legal system – enforcement
Legal system – judicial independence
Rule of law	WB's World Governance Indicators	Around 100 countries
Political stability
Corruption
Government effectiveness
Financial development
Financial liberalisation – EFW	Fraser Institute	Around 100 countries	Annual, until 2005
Domestic credit % GDP	World Bank's World Development Indicators database	Around 100 countries	Annual, about 30 years
Domestic private credit % GDP
Bank branches per capita
Stock market capitalisation % GDP
Stock market turnover % GDP
Trade openness
Openness	World Bank's World Development Indicators database	Around 100 countries	Annual, about 30 years
Log openness
Log openness – size adjusted	Own calculation based on WDI
Trade liberalisation – EFW	Fraser Institute	Around 100 countries	Annual, until 2005
Innovation intensity
R&D spending % GDP	World Bank's World Development Indicators database	Around 100 countries	Annual, about 30 years
Patents/capita

Source: Author.

Table 2
Summary of estimation results

	MFP	Capital deepening	Employment rate	Per capita income
Linear relationships
Within dimension
Institutions	Yes	No	Yes	Yes
Business regulation	Yes	No	No	No
Product market regulation	–	–	–	–
Labour market regulation	–	Yes	Yes	–
Financial system development	Yes	No	–	Yes
Between dimension
Institutions	Yes	No	Yes	Yes
Business regulation	?	No	No	No
Product market regulation	BTI	BTE, SSC	BTE, SSC	BTI
Labour market regulation	Yes??	No	Yes??	No
Financial system development	Yes	Yes	–	Yes
Non-linear relationships	conditional on
	per capita income
Business regulation	Yes	No	Yes	Yes
Product market regulation	BTE,BTI,SSC	NO	BTE, SSC	BTE,BTI,SSC
Labour market regulation	No	No	Yes	No
	institutions
Business regulation	Yes	No	Yes	Yes
Product market regulation	BTE,BTI,SSC	BTE, SSC	BTE, SSC	BTE,BTI,SSC
Labour market regulation	No	No	Yes	No
	labour market regulations
Business regulation	No	No	No	No
Product market regulation	BTE,BTI,SSC	NO	BTE,SSC	BTE,BTI,SSC
Labour market regulation	No	No	No	No

Notes: Results on the linear relationship are split into two main parts: within dimension (coefficient estimates identified from the time variation in the data); and between dimension (coefficient estimates obtained on cross-sectional data). Non-linear relationships are estimated only on cross-section data (because no time series are available for PMR). The column ‘non-linear variables’ lists the variables, which take different coefficients, depending on the level of other variables. These ‘other variables’ are named in the rows “conditional on …” and are per capita income, institutions and labour market regulations. ‘YES’ implies a statistically significant relationship. ‘?’ implies that the estimated relationship is not very robust. ‘NO’ indicates the absence of a statistically significant relationship. ‘--’ indicates that the variable could not be included in the regressions. BTE, BTI and SSC indicate that there is a statistically significant relationship between the PMR sub-components barriers to entry (BTE), barriers to trade and investment (BTI) and the scope of state control (SSC) on the one hand and economic outcomes (MFP, capital deepening, the employment rate and per capita income) on the other hand.

Table 3A
Quantification results – linear regressions, per capita effects due to the three supply-side channels (in percent)

	Impact through						Total impact
	MFP		K/Y		L		Per capita income: aggregated from MFP, K/Y and L
	Policy measured as one standard deviation
	Within	Between	Within	Between	Within	Between	Within	Between
Institutions
Government effectiveness	7.4	50.0			0.8	5.2	8.2	55.2
Rule of law	5.0	42.9			0.5	4.5	5.5	47.4
Political stability	5.7	24.0			1.0	4.3	6.7	28.3
Corruption	5.9	39.8			0.9	6.0	6.8	45.8
Business regulation
Cost of starting a business	0.8	1.3	9.0	15.6			9.8	16.9
Cost of contract enforcement	1.4	13.5					1.4	13.5
Time of insolvency procedures	5.6	14.6			1.1	2.8	6.6	17.4
Product market regulation
PMR – overall	–		–	8.9	–	1.5	–	10.4
PMR – barriers to entry	–	17.3	–	5.2	–	2.0	–	24.5
PMR – barriers to trade & investment	–	8.3	–		–		–	8.3
PMR – scope of state control	–		–	6.4	–	4.1	–	10.5
Labour market regulation
EPL – OECD regular contracts						0.9		0.9
EPL – Cambridge indicator					0.8	3.1	0.8	3.1
Labour market regulation (EFW)			2.1	5.5	0.8	2.0	2.9	7.5
Financial development
Banking sector	4.9	12.4	4.2	10.7			9.1	23.0
Financial markets	8.1	17.2					8.1	17.2

Note: MFP, K/Y and L indicate by how much per capita income would increase due to policy changes affecting the three supply-side channels. The change in the indicators is defined as one standard deviation in the data. Columns named ‘within’ show that the change in the policies are based on the within dimension (variation over time). Columns named ‘between’ show that the changes in the policies are obtained from the between (cross-section) dimension. The effects are calculated following the methodology set out in box 1 in Égert and Gal (2016). Empty cells indicate the absence of robust empirical relationships. Cells filled with “--“ indicate that regression analysis was not possible for the particular variable and dimension (PMR indicator over time). The coefficient estimates used to calculate the effect are the average of the minimum and maximum coefficient estimates. Table C11 summarises from which particular regressions the coefficient estimates are used.

Source: Author’s calculations.

Table A1
Descriptive statistics: time varying variables

Variables	Min	Max	Mean	St. dev.
	Worldwide sample
Per capita income	5.29	11.62	8.75	1.31
Openness	0.31	449.99	91.94	51.78
Log Openness	-1.18	6.11	4.40	0.52
Log Openness (size adjusted)	-4.93	1.99	0.24	0.49
R&D spending %GDP	0.01	4.52	1.00	0.99
Rule of law	-2.67	2.00	0.00	0.99
Cost of starting a business	0.00	1,540.00	67.00	143.00
Time of starting a business	1.00	687.00	41.00	59.00
Labour market regulation – EFW	2.34	9.73	11475.00	1.49
Business regulation – EFW	2.86	8.89	6.01	1.04
Finance – bank branches per capita	0.13	237.07	19.38	23.96
Stock market capitalisation % GDP	0.04	606.00	54.91	62.54
	OECD sample
Openness	5.73	371.44	68.15	43.87
Log Openness	1.75	5.92	4.04	0.61
Log Openness (size adjusted)	-2.12	1.32	0.03	0.49
Business spending on R&D % GDP – OECD	0.01	3.76	1.05	0.73
General spending on R&D % GDP – OECD	0.15	4.48	1.68	0.88
General spending on basic R&D % GDP – OECD	0.05	0.90	0.31	0.16
ETCR – overall	0.79	6.00	4.08	1.47
ETCR – entry barriers	0.43	6.00	3.77	1.84
ETCR – public ownership	0.83	6.00	4.29	1.43
EPL regular contracts	0.26	5.00	2.18	0.83
ALMP spending	0.45	22.00	22.00	21.53

Table A2
Descriptive statistics: time-invariant variables (period averages)

Variables	Worldwide sample				OECD sample
	Min	Max	Mean	St. dev.	Min	Max	Mean	St. dev.
Institutions
Legal system	2.23	8.93	5.53	1.61	4.86	8.54	7,27	1,07
Legal system – enforcement	0.00	8.11	4.46	1.75	3.22	8.11	5,75	1,29
Legal system – judicial independence	0.60	9.15	4.80	2.15	3.85	9.17	7,06	1,74
Rule of law	-2.38	1.94	0.01	0.99	-0.53	1.94	1,27	0,60
Civil liberties	1.00	7.00	4.78	1.81	4.02	7.00	6,29	0,86
Polity2 – political stability	-10.00	10.00	3.78	6.17	27.00	10.00	8,01	3,17
Corruption	-1.71	2.45	0.01	0.98	-0.31	2.44	1,33	0,80
Government effectiveness	-2.18	2.18	0.00	0.99	0.16	2.14	1,36	0,56
Business environment
Cost of contract enforcement	8.00	163.00	35.00	26.00	8.00	39.00	21,00	8,00
Time of contract enforcement	133.00	1,715.00	628.00	305.00	216.00	1,332.00	517,00	260,00
Cost of insolvency procedures	1	76.00	17.00	12	1.00	23.00	10,00	6,00
Time of insolvency procedures	0.40	6.97	2.75	1.21	0.40	5.84	1,92	1,16
Cost of starting a business	0.00	991.49	66.32	121.4	0.05	20.69	6,80	6,42
Time of starting a business	2.78	690.71	41.86	60.34	2.71	61.08	16,83	11,68
OECD Product Market Regulation Indicator
PMR – overall					1.18	2.8	1,73	0,35
PMR – barriers to entry					1.49	3.07	2,06	0,37
PMR – barriers to trade & investment					0.20	2.09	0,74	0,41
PMR – scope of state control					1.51	3.92	2,41	0,54

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