Stephen Nickell Bank of England Monetary Policy Committee November 2005

Comments on “The Link between Product Market Reforms and Macro-Economic Performance” by Rachel Griffith and Rupert Harrison Stephen Nickell Bank of England Monetary Policy Committee November 2005 European Commission Workshop on Structural Reforms and Macroeconomic Performance, Brussels, 18 November, 2005

This paper makes a significant contribution to the expanding literature on product market regulation and macroeconomic performance. • The strategy is first to relate product reforms to a measure of the mark-up of price over marginal cost. Second, this is then related to various performance measures. In some cases, these two steps are merged.

The reported results suggest that product market reforms are associated with increased employment and investment. • However, the lower mark-ups generated by reforms seem to be associated with lower levels of productivity and reductions in R and D and productivity growth rates.

These latter results are based essentially on time series correlations. Some of the cross-section correlations tend to tell the opposite story in the sense that countries with lower rents tend to have higher productivity. However, cross-section correlations are easily corrupted by omitted variable bias. • On the other hand, some of the time series results must also be treated with caution. In particular, identifying shifts in trend productivity growth rates from 15 years of data is highly problematic.

Finally, when computing the rents, I would not use a constant cost of capital over a period when long-term real interest rates have declined significantly.

Stephen Nickell Bank of England Monetary Policy Committee November 2005