EDUCATIONAL OUTCOMES IN OECD COUNTRIES
14
firm-level investment and other firm outcomes across sectors and across firms with
different financial constraints.
The question is to what extent the effects found for short- to medium-run growth
experiences and for between-industry and between-firm growth carry over to the long-
run growth experiences of countries. For example, effects of product market regulations
on sectoral productivity may lead to structural change and international specialization,
thereby reducing any net effects on aggregate growth rates. Similarly, differences in
employment protection legislation may lead to differential growth experiences in booms
versus recessions that cancel out over the business cycle.
To test the importance of product and labor market regulations for long-run OECD
growth, we add a rich set of regulatory measures that the OECD has developed over the
past decade to our growth models. Specifically, we employ the latest versions of these
far-ranging indicators of regulations of both product and labor markets. These are
documented for product market regulations (PMR) in Venn (2009), who updates
previous versions since Organisation for Economic Co-operation and Development
(1999), and for employment protection legislation (EPL) in Wolfl, Wanner, Kozluk, and
Nicoletti (2009), who update previous versions since Nicoletti, Scarpetta, and Boylaud
(2000).13
The results, reported in Table 4, are unambiguous and telling: Not a single of the large
battery of measures derived to depict product and labor market regulations comes close
to being significantly related to the variation in long-run growth experiences across
OECD countries. At the same time, regulatory practices do not affect the result that
educational outcomes are a powerful predictor of long-run growth differences among
OECD countries.
Specifically, the first six columns of Table 4 employ aggregate and sub-indicators of
product market regulation. Each indicator is scaled from 0 to 6, with higher values
reflecting more restrictive policies. The first column uses the most aggregate indicator
of product market regulation, which is constructed from a total of 18 low-level
indicators. The coefficient is insignificant and close to zero. The same is true for the
two broad sub-categories of administrative regulation and domestic economic regulation
(columns (2) and (3)). The next three columns report results for the specific sub-
indicators referring to measures of state control, barriers to entrepreneurship, and
barriers to trade and investment, respectively. None of the measures is significantly
associated with long-run OECD growth.
Additional specific robustness specifications (not shown) confirm this basic result. For
example, the results hold for all underlying sub-indices, including indicators of public
ownership, involvement in business operations, regulatory and administrative opacity,
administrative burdens on start-ups, barriers to competition, and explicit and other
barriers to trade and investment. The available indicators of product market regulation
refer to 1998, the first year for which they are available. While earlier measures would
13 For details on the measures of product market regulation and employment protection, see www.oecd.org/eco/pmr and
www.oecd.org/employment/protection, respectively.