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In this paper, we look at differences in the scope and depth of pro-competitive regulatory reforms and privatisation policies as a possible source of cross-country dispersion in growth outcomes. The paper suggests that, despite extensive liberalisation and privatisation in the OECD area, the cross-country variation of regulatory settings has increased in recent years, lining up with the increasing dispersion in growth. We then investigate empirically the regulation-growth linkage using data that cover a large set of manufacturing and service industries in OECD countries over the past two decades and focusing on multifactor productivity (MFP), which plays a crucial role in GDP growth and accounts for a significant share of its cross-country variance. Regressing MFP on both economy-wide indicators of regulation and privatisation and industry-level indicators of entry liberalisation, we find evidence that reforms promoting private governance and competition (where these are viable) tend to boost productivity. In manufacturing the gains to be expected from lower entry barriers are greater the further a given country is from the technology leader. Thus, regulation limiting entry may hinder the adoption of existing technologies, possibly by reducing competitive pressures, technology spillovers, or the entry of new high-tech firms. At the same time, both privatisation and entry liberalisation are estimated to have a positive impact on productivity in all sectors. These results offer an interpretation to the observed recent differences in growth patterns across OECD countries, in particular between large Continental European economies and the United States. Strict product market regulations---and lack of regulatory reforms---are likely to underlie the relatively poorer prod...

At different speeds, and starting at different times in the past 20 years, OECD countries have been reforming product market regulations, improving regulatory techniques and adapting them to changing market and technological conditions. Reforms concerned both inherently competitive industries (such as road freight and

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Labour market reforms face very often opposition from the employed workers, because it normally reduces their wages. Also product market regulations are regularly biased towards too much benefitting the firms. As a result there remain many frictions in both the labour and product markets that hinder an optimal functioning of the economy. These issues have recently received a lot of attention in the economics literature and scholars have been looking for politically viable reforms in both markets. However, despite its potential importance, there has been done virtually no research on the interaction between reforms in product and labour markets. We find that when combining reforms, the opposition for reforms decreases considerably. This is because there exist complementarities and the gains in total welfare can be more evenly distributed over the interest groups. Moreover, the interaction of reforms offers a way out for the so-called ’sclerosis ’ effect.

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