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Product Market Regulation and Productivity Convergence: OECD Evidence and Implications for Canada

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  • Paul Conway
  • Giuseppe Nicoletti

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.

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Bibliographic Info

Article provided by Centre for the Study of Living Standards in its journal International Productivity Monitor.

Volume (Year): 15 (2007)
Issue (Month): (Fall)
Pages: 3-24

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Handle: RePEc:sls:ipmsls:v:15:y:2007:1

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Related research

Keywords: product market regulation; OECD countries; cross-country differences; sectoral productivity; reform.;

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References

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  1. Gust, Christopher & Marquez, Jaime, 2004. "International comparisons of productivity growth: the role of information technology and regulatory practices," Labour Economics, Elsevier, vol. 11(1), pages 33-58, February.
  2. Alesina, Alberto F & Ardagna, Silvia & Nicoletti, Giorgio & Schiantarelli, Fabio, 2003. "Regulation and Investment," CEPR Discussion Papers 3851, C.E.P.R. Discussion Papers.
  3. Giuseppe Nicoletti & Stefano Scarpetta, 2003. "Regulation, Productivity and Growth: OECD Evidence," OECD Economics Department Working Papers 347, OECD Publishing.
  4. Acemoglu, Daron & Aghion, Philippe & Zilibotti, Fabrizio, 2002. "Distance to Frontier, Selection, and Economic Growth," CEPR Discussion Papers 3467, C.E.P.R. Discussion Papers.
  5. Griffith, Rachel & Harrison, Rupert & Simpson, Helen, 2006. "Product Market Reform and Innovation in the EU," CEPR Discussion Papers 5849, C.E.P.R. Discussion Papers.
  6. Dominique Guellec & Bruno van Pottelsberghe de la Potterie, 2001. "R&D and Productivity Growth: Panel Data Analysis of 16 OECD Countries," OECD Science, Technology and Industry Working Papers 2001/3, OECD Publishing.
  7. Rachel Griffith & Stephen Redding & John Van Reenen, 2000. "Mapping the two faces of R&D : productivity growth in a panel of OECD industries," LSE Research Online Documents on Economics 784, London School of Economics and Political Science, LSE Library.
  8. Paul Conway & Donato de Rosa & Giuseppe Nicoletti & Faye Steiner, 2006. "Regulation, Competition and Productivity Convergence," OECD Economics Department Working Papers 509, OECD Publishing.
  9. N Dryden & Stephen Nickell & D Nicolitsas, 1996. "What Makes Firms Perform Well?," CEP Discussion Papers dp0308, Centre for Economic Performance, LSE.
  10. Wolfgang Keller, 2004. "International Technology Diffusion," Journal of Economic Literature, American Economic Association, vol. 42(3), pages 752-782, September.
  11. Jean-Philippe Cotis, 2006. "Benchmarking Canada's Economic Performance," International Productivity Monitor, Centre for the Study of Living Standards, vol. 13, pages 3-20, Fall.
  12. Nicholas Crafts, 2006. "Regulation and Productivity Performance," Oxford Review of Economic Policy, Oxford University Press, vol. 22(2), pages 186-202, Summer.
  13. Maria Maher & Jay Shaffer, 2005. "Product Market Competition and Economic Performance in Canada," OECD Economics Department Working Papers 421, OECD Publishing.
  14. Paul Conway & Giuseppe Nicoletti, 2006. "Product Market Regulation in the Non-Manufacturing Sectors of OECD Countries: Measurement and Highlights," OECD Economics Department Working Papers 530, OECD Publishing.
  15. Baldwin, John R. & Wong, Fanny & Maynard, Jean-Pierre, 2005. "The Output Gap Between Canada and the United States: The Role of Productivity (1994-2002)," Insights on the Canadian Economy 2005009e, Statistics Canada, Economic Analysis.
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Cited by:
  1. Peter Jarrett, 2012. "The Long-term Outlook for Productivity and Per Capita Income Growth for Canada: A Comparison with Selected G-20 Countries," International Productivity Monitor, Centre for the Study of Living Standards, vol. 24, pages 85-96, Fall.
  2. Christine Carmody, 2013. "Slowing Productivity Growth - A developed economy," Economic Roundup, Treasury, Australian Government, issue 2, pages 57-78, December.

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