Transcript Bbb Endogenous deregulation: evidence from OECD countries

Endogenous deregulation:
evidence from OECD countries
Duo and Roller,
Economics Letters, 2003, 67-71
Introduction
• Does deregulation affect productivity?
(competition effect)
• Is deregulation independent, or does it
depend on other variables, such as
political and institutional factors?
(selection effect)
• If we ignore second effect, do we
overestimate the competition effect?
Literature Review
• Deregulation by increasing competition
increases productivity. More firms are allowed to
produce which will affect per unit costs, quality,
welfare.
• However, the decision to deregulate may not be
independent (or exogenous). It may depend on
other factors. Ignoring this relationship may over
estimate the competitive effect.
• Wilson (1993) for a survey.
Model
• Let s be the policy decision and q be the
productivity. Then policy equation is:
s  f ( Polinst , regulinst , idea , q)  u
Market equation is defined as
q  g (demand , cos ts, marketstructure, s)  v
• The objective is to correctly estimate the effect
of deregulation on productivity
q / s
OLS
q / s
2 SLS
Data
• Data period is 1993-1997
• OECD International Regulations Database
DATA: VARIABLE DEFINITIONS
• s: ENTRY= 1,2,3 (for monopoly, duopoly, and oligopoly)
• q: PRODUCTIVITY: total subscribers per employee
• Instruments for political institutions: MAJORITARIAN,
PRESIDENTIAL.
• Instruments for regulatory institutions:
ACCOUNTABILITY, INDEPENDENCE, RILE, PROREG.
• Demand variables: GDP, Pop
• Cost Variables: Investment per employee, Wage exp. per
employee,
• Time Trend:
Empirical Results
Empirical Results
• In OLS regressions (ignoring simultaneity)
is 0.485 and significant at 1% level.
• In Simultaneous systems the coefficient is
0.247 and still significant (at 10% level).
• OLS estimation overestimates the effect.
Empirical Results
• Others….
• In deregulation equation,
– most of the political variables and institutional
variables are significant with expected signs.
– The productivity variables is positive and
significant.
• In the productivity equation,
– Entry is positive and significant but the value
is less.
Conclusions
• The impact of deregulation on productivity
is positive and significant.
• If it is estimated in a model which ignores
simultaneity it is overestimated
Thank you,