Regulatory reform and competition policy

Cutting barriers to competition, investment and trade would boost GDP in the OECD area, OECD study says


02/12/2005 - Ahead of the Doha Round meeting in Hong Kong, a new OECD study highlights the gains in prosperity that could be achieved in developed countries by reducing barriers to trade, investment and competition. On average, it estimates, lowering these barriers to so-called "best practice levels could provide a one-off boost to economic output over the medium term of around three percentage points in each of the main OECD regions - Europe, North America and Asia-Pacific. These permanently higher levels of GDP would have a cumulative effect on earnings: the benefit to workers in OECD countries could amount to the equivalent of one to two full years' income across a working lifetime.

The OECD working paper "The benefits of liberalising product markets and reducing barriers to international trade and investment in the OECD" complements an OECD study published in June, which was confined to the United States and Europe, by extending the analysis to all OECD members, including a number of large economies such as Japan, Korea, Canada, Australia and Mexico. It establishes benchmarks of best practice against which other OECD countries can be measured. Australia, for instance, has the least restrictive level of state control of business, it says, while Denmark and Ireland impose the lightest administrative procedures for start-ups. Ireland, alongside the UK, scores well in openness to competition while Canada has the clearest business regulations.

Commenting on the study , OECD Secretary General Donald J. Johnston said: "This illuminating piece of work provides a valuable example of the kind of cross-country approach to economic analysis that makes the OECD such a useful tool for policy makers."

The working paper argues that reforming regulations that restrain competition, especially in services, would contribute more to raising GDP than reducing border barriers to trade, such as tariffs, in particular for Europe. Matching the best practice benchmarks across a range of competition and trade regulations would require major, although not unprecedented, reform efforts in all OECD countries.

For further comment, journalists are invited to contact the OECD's Chief Economist, Jean-Philippe Cotis (tel:+ 33 1 45 24 87 10).