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Quantification of reforms

The Structural Surveillance Division at OECD quantifies the impact of structural reforms on economic outcomes to boost growth and fiscal sustainability. By mapping reforms, unit effects, and aggregating impacts, the division provides empirical evidence to support policies.

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Quantification of reforms

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  1. Quantification of reforms Balázs ÉgertOECD, Economics DepartmentStructural Surveillance DivisionQuantification Unit

  2. What we do at the Structural Surveillance Division • Going for Growth publication • Quantification unit • Producing indicators • Product Market Regulation (PMR) indicator • Electricity, Transport and Communication Regulation (ETCR) indicator • Regulatory Impact (regimpact) indicator • Work on the framework of quantifying the impact of structural policies on economies outcomes (growth)

  3. Renewed interest in quantifying the impact of reforms on growth • low economic growth in the aftermath of the crisis • help mitigate the negative impact of fiscal consolidation • help restore fiscal sustainability (public debt crisis => more growth lower debt) • mitigate the impact of slowing potential growth (population ageing)

  4. GDP per capita Employment rate Labour productivity (No. of employees / Pop) (GDP per employee) Labour force Unemployment Investment in Multi factor participation rate physical capital productivity Quantifying the effects of reforms • Purpose: • Links to policies assessed through well-established channels • Supported by empirical evidence from aggregate, industry and firm-level data Key drivers in a production function approach

  5. Framework allows for multiple policy channels to be explored and quantified Top level performance Intermediate drivers Policies and institutions

  6. Policy variables can be classified according to their systemic importance

  7. Main steps of quantification exercise

  8. Step 1 - Mapping reforms into indicators

  9. Step 2 – Unit effect on productivity

  10. Benchmark elasticity but allows for country-specific impact in some cases Step 2 – Unit effect on productivity

  11. Step 3: Aggregation of reformsExample of quantification: Reform programme in Italy 1. OECD estimates for the impact of product market reform include the results of reforms from 2012 onwards. Approximately two thirds of the quoted impact are due to measures taken in 2012-13. 2. The impact of the labour market reform is based on a judgement, based on the Jobs Act LeggeDelega(enabling law), although not all details are defined yet.

  12. The estimated longer term impact on the profile of GDP Expected medium-term benefits for reforms introduced in “normal” times, i.e. in broadly favourable economic conditions

  13. The pace of reforms has been faster in countries facing hardest macro conditions Countries reforming most were also those engaged into strongest fiscal consolidation efforts

  14. Contrast between medium-term expected gains and persistently weak growth performance raises questions

  15. Reforms to be promoted in a context of weak demand

  16. Product market reforms that can ease supply constraint can bring benefits even in a difficult context Regulatory barriers to competition in regulated professions (legal services, engineering, architecture and accounting) Reducing entry barriers in service sectors with large pent-up demand and low entry costs can unleash the entry of new firms

  17. Reforms least likely to succeed in a context of weak demand

  18. Improving on the current quantification frameworks

  19. Improving on the current quantification frameworks • Updating outdated estimates • Existing estimations mostly run only till mid-2000s • Extending to more policies and channels • Including complementarities • Taking into account more country-specificities • Better mapping policy changes into indicators • Incorporating emerging markets (EMEs) • Current frameworks cover mostly OECD

  20. Increasing consistency For the different channels (MFP, investment, labour market outcomes) Similar time period and Similar country coverage Same data sources and variable definitions Harmonised estimation approach

  21. Extending policy channels • Policies specific to production factors (widely used in earlier studies) • Innovation, trade (MFP) • Corporate tax (physical capital) • Active labour market policies (employment) • Framework conditions (used to varying extent in earlier studies) • Product and labour market regulations (widely used) • Competition law and policy (not used) • Efficiency of bankruptcy legislation (used to some extent) • Basic institutions, legal infrastructure (rarely used in earlier studies – infrequent observations) • Rule of law, efficiency of judicial systems • Intellectual property rights

  22. Better mapping policies into existing indicators • Starting point of quantification: the identification of actual policy changes in existing indicators • The more policies we manage to bring into the new framework, the impact of more actual policy changes we will be able to evaluate • A better mapping of actual policy changes into existing indicators (PMR) also increases the preciseness of quantification. This is a very challenging task

  23. Thank you

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