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Regulation and macroeconomic performance

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  • Loayza, Norman V.
  • Oviedo, Ana Maria
  • Serven, Luis

Abstract

Regulation is purportedly enacted to serve specific social purposes. In reality, however, it follows a more complex political economy process, where legitimate social goals are mixed with the objectives of particular interest groups. Whatever its justification and objectives, regulation can have potentially significant macroeconomic consequences, by helping or hampering the dynamics of economic restructuring and resource reallocation that underlie the growth process. This paper provides an empirical analysis of the macroeconomic impact of regulation. It first characterizes the stylized facts on regulation across the world, using a set of newly constructed, comprehensive indicators of regulation in a large number of countries in the 1990s. Using these indicators, the paper studies the effects of regulation on economic growth and macroeconomic volatility employing cross-country regression analysis. In particular, the paper considers whether the effects of regulation are affected by the country's level of institutional development. Finally, the analysis controls for the likely endogeneity of regulation with respect to macroeconomic performance. The paper concludes that a heavier regulatory burden reduces growth and increases volatility, although these effects are smaller the higher the quality of the overall institutional framework.

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Bibliographic Info

Paper provided by The World Bank in its series Policy Research Working Paper Series with number 3469.

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Date of creation: 01 Jan 2005
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Handle: RePEc:wbk:wbrwps:3469

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Keywords: Public&Municipal Finance; Environmental Economics&Policies; International Terrorism&Counterterrorism; Financial Intermediation; Public Sector Economics&Finance; Environmental Economics&Policies; Governance Indicators; National Governance; Public Sector Economics&Finance; Financial Intermediation;

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Citations

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Cited by:
  1. Campos, Nauro F & Horváth, Roman, 2006. "Reform Redux: Measurement, Determinants and Reversals," CEPR Discussion Papers 5673, C.E.P.R. Discussion Papers.
  2. Fabio Schiantarelli, 2005. "Product Market Regulation and Macroeconomic Performance: A Review of Cross Country Evidence," Boston College Working Papers in Economics 623, Boston College Department of Economics, revised 04 Aug 2008.
  3. Philippe Aghion & Philippe Bacchetta & Romain Rancière & Kenneth Rogoff, 2005. "Productivity growth and the exchange rate regime: The role of financial development," Economics Working Papers 850, Department of Economics and Business, Universitat Pompeu Fabra.
  4. Era Dabla-Norris & Gabriela Inchauste, 2007. "Informality and Regulations," IMF Working Papers 07/112, International Monetary Fund.
  5. Jac C. Heckelman & Stephen Knack, 2008. "Foreign Aid and Market-Liberalizing Reform," Economica, London School of Economics and Political Science, London School of Economics and Political Science, vol. 75(299), pages 524-548, 08.
  6. Knight-John, Malathy, 2005. "Regulatory Impact Assessment: A Tool for Improved Regulatory Governance in Sri Lanka?," Centre on Regulation and Competition (CRC) Working papers 30626, University of Manchester, Institute for Development Policy and Management (IDPM).
  7. Alvaro Escribano & J. Luis Guasch & Manuel De Orte & Jorge Pena, 2008. "Investment climate assessment based on demean Olley and Pakes decompositions: methodology and application to Turkey's investment climate survey," Economics Working Papers we082012, Universidad Carlos III, Departamento de Economía.
  8. Alvaro Escribano & J. Luis Guasch & Manuel De Orte & Jorge Pena, 2008. "Investment climate and firm’s economic performance: econometric methodology and application to Turkey's investment climate survey," Economics Working Papers we082113, Universidad Carlos III, Departamento de Economía.
  9. Silvia Ardagna & Annamaria Lusardi, 2008. "Explaining International Differences in Entrepreneurship: The Role of Individual Characteristics and Regulatory Constraints," NBER Working Papers 14012, National Bureau of Economic Research, Inc.
  10. Campos, Nauro F. & Horváth, Roman, 2012. "Reform redux: Measurement, determinants and growth implications," European Journal of Political Economy, Elsevier, vol. 28(2), pages 227-237.
  11. Loayza, Norman V. & Oviedo, Ana Maria & Serven, Luis, 2005. "The impact of regulation on growth and informality - cross-country evidence," Policy Research Working Paper Series 3623, The World Bank.
  12. Diego Restuccia, 2008. "The Latin American Development Problem," Working Papers tecipa-318, University of Toronto, Department of Economics.
  13. Escribano, Alvaro & Guasch, J. Luis, 2005. "Assessing the impact of the investment climate on productivity using firm-level data : methodology and the cases of Guatemala, Honduras, and Nicaragua," Policy Research Working Paper Series 3621, The World Bank.

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