1

Reform of Product Market

Regulation in OECD

Countries, 1998-2008

Anita Wölfl

OECD-Economics Department

OECD-BRE Workshop on Indicators of Regulatory

Management Systems,

London, 3 April 2009

2

A reminder: PMR - What is it all about?

Basic idea

– Turn qualitative data on laws and regulations that inhibit competition into

quantitative indicators.

Bottom-up approach based on regulatory data

– Data derived from a survey of member countries (and external data sets)

– Policy focused – i.e., not based on opinion surveys or market outcomes

Main uses

– Benchmarking to allow comparison across countries

– Diagnostic tool for specific policy advice

– Empirical analysis of the competition-performance link Used in Going for Growth context, country surveys and specific OECD projects, as well as in the PMR project of the World Bank Indicators available on line for government agencies and academics at www.oecd.org/eco/pmr

3

The PMR indicator system

The indicators of Product Market Regulation (PMR):

– Economy wide

– Rich coverage of regulatory data, limited time dimension

The indicators of Non-Manufacturing Regulation (NMR):

– Cover several non-manufacturing sectors:

• ETCR: several network industries (Energy, Transport,

Communication),

• Retail Trade, Professional Services

– More limited regulatory coverage, but long time series (ETCR)

The indicators of Regulation Impact (RI)

– Derived from NMR indicators and Input-Output-Analysis

– Time series driven by ETCR

– Used for impact analysis

4

The “integrated” PMR indicator on which the presented analysis is based

Scope of public

enterprise

(0.33)

Direct control

over business

enterprises

(0.33)

Licenses and

permits system

(0.50)

Communication

and

simplification

of rules and

procedures

(0.50)

Sector-specific

administrative

burdens

(0.33)

Legal barriers

(0.25)

Antitrust

exemptions

(0.25)

Discriminatory

procedures

(0.33)

Regulatory

barriers

(1.0)

Gov’t involvement

in network sectors

(0.33)

Barriers in

network sectors

(0.25)

Barriers in

services

(0.25)

Barriers to FDI

(0.33)

Product market regulation

Tariffs

(0.33)

Admin. burdens

for corporations

(0.33)

Admin. burdens

for sole

proprietor firms

(0.33)

Price

controls

(0.50)

Use of

command

and control

regulation

(0.50)

State control

(0.33)

Other

barriers

(0.50)

Explicit barriers

to trade and

investment

(0.50)

Barriers to

competition

(0.33)

Regulatory and

administrative

opacity

(0.33)

Involvement

in business

operations

(0.50)

Public

ownership

(0.50)

Barriers to trade and

investment (0.33)

Barriers to entrepreneurship

(0.33)

Administrative

burdens on

start-ups

(0.33)

5

Product market regulation beginning of 2008 … Index scale of 0-6 from least to most restrictive

6

... the result of substantial reforms since 1998 Index scale of 0-6 from least to most restrictive

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5U

nited

Sta

tes

Un

ited

Kin

gdom

Can

ad

a

Neth

erl

ands

Icela

nd

Den

mark

Sp

ain

Jap

an

No

rway

Fin

land

Austr

alia

New

Zeala

nd

Sw

itzerl

an

d

Hun

gary

Sw

ed

en

Germ

an

y

Austr

ia

Italy

Belg

ium

Po

rtug

al

Fra

nce

Ko

rea

Luxem

bo

urg

Czech

Rep

ublic

Mexic

o

Turk

ey

Po

lan

d

1998 2003 2008

7

But: slowing pace of reform and convergence Level and change in index points, with 0=least and 6=most restrictive

Panel A. 1998-2003 Panel B. 2003-2008

AUS

AUTBEL

CAN

CZE

DNK

FIN FRA

GER

HUN

ICE

ITAJAP

KOR

MEX

NLDNZL

NOR

PRT

ESP

SWE

CHE TUR

GBRUSA

-1.20

-1.00

-0.80

-0.60

-0.40

-0.20

0.00

0.20

0.40

0.60

0.00 0.50 1.00 1.50 2.00 2.50 3.00 3.50

2003-1998 …

1998 values

Correlation coefficient: -0.84

AUS

AUT

BEL

CAN

CZE

DNKFIN

FRAGER

HUN

ICE

ITA

JAP KOR

MEX

NLD

NZL

NOR

POL

PRT

ESP

SWE

CHE

TUR

GBR

USA

-1.20

-1.00

-0.80

-0.60

-0.40

-0.20

0.00

0.20

0.40

0.60

0.00 0.50 1.00 1.50 2.00 2.50 3.00 3.50

2008-2003 …

2003 values

Correlation coefficient: -0.62

8

Strong reform in certain regulatory areas Average change in index points, 0=least and 6=most restrictive

-1.4

-1.2

-1.0

-0.8

-0.6

-0.4

-0.2

0.0

0.2

Average change 98-03 Average change 03-08

Barriers to entrepreneurship

Barriers to trade and

investmentState control

9

… driven by reform in different sectors Average change in index points, 0=least and 6=most restrictive

-1.8

-1.6

-1.4

-1.2

-1.0

-0.8

-0.6

-0.4

-0.2

0.0

0.2

Ele

ctri

city

Gas

Po

st

Tele

com

Rai

l

Ro

ad

Air

line

s

Pro

f. s

erv

ice

s

Re

tail

trad

e

Average change 98-03 Average change 03-08

10

Some signs of reform complementarities Index scale of 0-6 from least to most restrictive

Aus

AutBel

Can

Cze

Dnk

Fin

Fra

Ger

Hun

Isl

Ita

Jpn

Kor

MexNld

Nzl

Nor

Pol

Prt

Esp

Swe

Che

Tur

Gbr

Usa

-0.1

-0.1

-0.1

-0.1

0.0

0.0

0.0

6 8 10 12 14 16C

han

ge in

PM

R '9

8-'08, r

ela

tive

to n

um

ber o

f re

form

s

Number of regulatory areas with reforms

Correlation coefficient: -0.59***

11

Scope for future reform in state control … Distance from best practice,

Index scale of 0-6 from least to most restrictive

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

Mean across countries

Variance across

countries

State control Barrier to entrepreneurship Barrier to trade and investment

12

… and barriers to retail trade and prof. services

Distance from best practice,

Index scale of 0-6 from least to most restrictive

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

Mean across countries

Variance across

countries

13

The 2008 round of PMR indicator revision

A. Revised questionnaire

– to better reflect ongoing competition issues.

B. Improved data collection and processing

– to facilitate future updates,

– to reduce uncertainty in the data,

– to facilitate extension to new member countries later on.

C. Integration of existing indicators

– PMR, NMR, FDI-regulatory restrictiveness index (OECD-DAF)),

– to make existing indicator more policy-relevant.

D. Revise underlying methodology (in particular weights)

– Maintaining & enhancing comparability over time & across countries,

– ensuring robustness of indicator results.

14

Integrating information on sectoral regulation Average change in index points, 0=least and 6=most restrictive

-1.0

-0.8

-0.6

-0.4

-0.2

0.0

0.2

0.4

0.6

0.8

1.0

1998 2003 2008 1998 2003 2008 1998 2003 2008 1998 2003 2008

State control

Barriers to enterpreneurship

Barriers to trade & investment Overall PMR

Average changeacross countries

Cross-country

dispersion

15

Reconsidering the weights

Reasons:

– Currently based on old data and old indicator structure

=> no longer viable

– Caveats of PCA: Problematic updating, sensitive to new data (countries &

years), sensitive to tree structure.

Analysis (JRC):

– Sensitivity analysis of the indicator values and related inferences to

changes in :

• weights (move from PCA to Equal Weights), linked with …

• … indicator and country coverage,

• normalization

• aggregation methods (e.g. compensatory vs. non-compensatory).

– Contribution analysis

• contribution of individual indicators to the overall country ranking,

• to identify policy priorities and potential areas for more frequent

updates.

16

Moving from PCA to Equal weights Average change in index points, 0=least and 6=most restrictive

-1.0

-0.8

-0.6

-0.4

-0.2

0.0

0.2

0.4

0.6

0.8

1.0

1998 2003 2008 1998 2003 2008 1998 2003 2008 1998 2003 2008

State control

Barriers to enterpreneurship

Barriers to trade & investment Overall PMR

Average change

across countries

Cross-country

dispersion

17

Outlook – further improvements

Extension of the indicator – new generation PMR

– To cover evolving regulatory issues:

• Regulatory quality – sector regulators

• Governance of state-owned enterprises

• More elaborate treatment of non-tariff barriers to trade

Extension of analysis to other countries

– OECD accession countries

– Enhanced engagement and other non-member countries.

Analysis of the regulation-performance link

– Cross-section and time series

– Impact of regulation on outcome variables.

18

Thank you !

For further information:

www.oecd.org/eco/pmr

19

System of data collection and processing

Sectoral

Indicators

ETCR:

‟75-‟07

Retail,

Prof.Serv:

„98, „03, „07

Overall PMR

‟98, ‟03, ‟07

Revised

Questionnaire

Existing 2003

database

Core

Database

of replies

External

data sources

Electronic

questionnaire

Database

Public

Use

20

The 2003 PMR tree structure

Barriers to entrepreneurship

(0.30)

State control

(0.29)

Public

ownership

(0.56)

Involvement

in business

operations

(0.44)

Other

barriers

(0.30)

Explicit

barriers to trade

and investment

(0.70)

Administrative

burdens on

start-ups

(0.30)

Scope of public

enterprise

(0.30)

Size of public

enterprise

(0.30)

Direct control

over business

enterprises

(0.40)

Price

controls

(0.45)

Use of

command

and control

regulation

(0.55)

Licenses and

permits system

(0.55)

Communication

and

simplification of

rules and

procedures

(0.45)

Administrative

burdens for

corporations

(0.36)

Administrative

burdens for sole

proprietor firms

(0.30)

Sector-specific

administrative

burdens

(0.34)

Legal

barriers

(0.30)

Antitrust

exemptions

(0.70)

Ownership

barriers

(0.45)

Tariffs

(0.31)

Discriminatory

procedures

(0.24)

Regulatory

barriers

(1.0)

Product market regulation

Barriers to trade and

investment (0.41)

Regulatory and

administrative

opacity

(0.48)

Barriers to

competition

(0.22)

21

The current tree structure of NMR [1]

ETCR

Gas Road Airlines

Public

ownership

Entry Entry Entry Entry Entry Entry

Telecoms Electricity Post Rail

Public

ownership

Market

structure

Public

ownership

Vertical

integration

Public

ownership

Market

structure

Entry

Public

ownership

Public

ownership

Market

structure

Vertical

integration

Prices

Vertical

integration

Energy Transport Communication

22

Conduct

regulation

Prices and

fees

Registration Shop

opening

hours

Conduct

regulation

Entry

regulation

Entry

regulation

Advertising

Form of

business

Licenses and

permits

Large outlet

restrictions

Price

controls

Licensing

Education

requirements

Retail distribution Professional services

Protection of

incumbents

Quotas and

economic

needs tests

Inter-

professional

cooperation

The current tree structure of NMR [2]

23

Reconsidering the weights (JRC) PMR 2008, computed with PCA based on data for different years

24

Reconsidering the weights (JRC) PMR 2003, PCA based on different number of low-level indicators

AUS

AUT

BEL

CAN

CZE

DNK

FIN

FRA

DEU

HUN

ISL

ITA

JPN

KOR

LUX

MEX

NLD

NZL

NOR

POL

PRT

ESP

SWE

CHE

TUR

UKMUSA

0

3

6

9

12

15

18

21

24

27

30

0 3 6 9 12 15 18 21 24 27 30

PC

A 1

8 i

nd

icato

rs

PCA 15 indicators

PCA weights computed from 15 or 18 indicators

25

A multi-modelling approach (JRC) Times (in %) in which each country ranks 1st, 2nd, 3rd, ….. , 27th

PMR Median 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27

2 1 GBR 84 7 8 1 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

1 2 USA 6 63 22 2 1 1 2 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

4 5 ISL 8 15 17 12 13 7 7 4 4 3 2 1 1 1 0 0 0 0 1 1 0 1 0 0 1 0 0

7 5 ESP 0 3 17 24 16 12 12 9 3 0 1 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

5 6 NLD 0 2 14 13 14 14 23 12 4 3 1 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

6 7 DNK 0 4 4 6 12 14 10 10 6 4 11 3 1 0 10 1 0 0 0 1 0 0 0 0 0 0 0

3 8 CAN 0 0 9 17 11 7 5 10 12 13 3 3 4 2 1 1 1 0 0 0 0 0 0 0 0 0 0

12 8 NZL 0 2 3 12 6 7 9 14 21 9 5 5 1 1 3 0 2 1 0 0 0 0 0 0 0 0 0

11 10 AUS 0 0 1 2 8 5 8 10 9 8 11 11 11 8 6 0 0 0 0 0 0 0 0 0 0 0 0

9 10 NOR 0 0 3 3 4 6 7 10 14 9 8 6 4 2 3 7 6 6 0 1 1 0 0 0 1 0 0

10 11 FIN 0 0 0 0 0 0 3 3 11 19 24 27 9 3 1 0 0 0 0 0 0 0 0 0 0 0 0

8 11 JPN 1 0 1 6 2 3 2 10 7 16 7 4 3 12 10 5 6 1 2 1 0 0 0 0 0 0 0

14 13 SWE 0 3 1 1 1 3 3 3 3 6 7 13 11 9 4 10 9 10 1 1 2 0 0 0 0 0 0

13 15 CHE 0 0 0 0 0 0 2 2 2 2 5 6 19 14 14 13 11 8 1 1 0 0 0 0 0 0 0

19 16 BEL 0 0 0 1 0 10 6 1 3 3 2 4 5 4 9 18 10 9 7 4 1 1 1 0 0 0 0

20 16 FRA 0 0 0 0 0 1 0 0 2 2 6 6 11 9 11 6 10 11 6 9 7 2 0 0 0 0 0

17 16 HUN 0 0 1 0 11 7 1 0 0 1 3 3 2 8 6 7 15 12 12 4 4 2 1 0 0 0 0

16 18 DEU 0 0 0 0 0 0 0 0 0 2 2 3 7 7 11 7 7 8 15 11 11 4 3 0 0 0 0

15 18 ITA 0 0 0 0 0 0 0 0 0 1 1 1 2 3 6 14 7 18 14 8 13 11 1 0 0 0 0

18 20 AUT 0 0 0 0 0 0 0 0 0 0 0 0 1 1 2 6 6 6 9 21 17 11 16 1 0 0 0

23 20 LUX 0 0 0 0 0 0 0 0 0 0 0 0 7 12 1 1 2 4 10 20 12 17 9 5 0 0 0

22 22 PRT 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 2 9 12 15 24 31 5 0 0 0

24 23 CZE 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 1 0 4 4 9 10 24 39 7 0 0

21 24 KOR 0 0 0 0 0 0 0 0 0 0 0 2 1 3 2 1 4 3 3 3 5 9 11 30 22 1 0

25 25 MEX 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 10 55 25 9

26 26 TUR 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 5 0 0 6 1 8 13 50 15

27 27 POL 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 1 23 75

26

A new generation PMR from ‟08 onwards

Barriers to

entrepreneurship

Public

ownership Involvement in

business

operations

Other

barriers

Explicit

barriers to

trade & inv.

Regulatory

effectiveness

Administrative

burdens on

start-ups

Barriers to

competition

Scope of public

enterprise

Direct control

over business

enterprises

Price

controls

Use of

command

and control

regulation

Licenses and

permits system

Communication

and

simplification

of rules and

procedures

Sector-specific

administrative

burdens

Antitrust

exemptions

Regulatory

barriers

Gov’t involvement

in network sectors

Barriers in

network sectors

Barriers in

services

State control Barriers to trade and

investment

Barriers

to FDI

Product market regulation

Tariffs

Administrative

burdens for

corporations

Administrative

burdens for sole

proprietor firms

Legal barriers

Sector

Regulators Governance

of SoE’s

Differential

treatment of

foreign

suppliers

Barriers to

trade

facilitation

Barriers to

market access of

foreign suppliers