Transcript Services Liberalisation and Evolving Regulation

Services Liberalisation
and Evolving Regulation:
Trends and Outcomes in
OECD Countries
Pierre Sauvé and Nora Dihel
OECD Trade Directorate
Symposium on Assessment of Trade in Services
Geneva, 14-15 March 2002
Introduction


Highlight features of liberalisation
and regulatory reform in OECD
countries
Illustrate economy-wide and
sectoral benefits arising from
services liberalisation and
regulatory reform
2
Stylised Facts: Services - Source
of Significant Value-added,
Productivity Growth and Trade
Benefits Services account for a substantial



and rising share of output and
employment in the economy
Share of employment in services proxy of an economy’s
development level
Benefits from services trade
liberalisation: export opportunities
and reduced costs for imported
intermediate services
3
Services Account for a
Substantial and Rising Share
of Output and Employment in
the Economy
 Share
of services in world GDP
increased by 5 percentage
points between 1980-1998
 The corresponding increase for
low and middle-income
economies : 9 percentage points
 Services account for close to 70
percent of production and
employment in OECD area
4
Relationship between services employment and
national income
80%
NETHERLANDS

  NORWAY






FINLAND
ICELAND


IRELAND


 
U.K.
NEW
ZEALAND
70%
Services
Share of
Civilian 60%
Employment,
50%
1998

SPAIN
KOREA
HUNGARY GREECE


MEXICO

POLAND


UNITED
STATES

LUXEMBOURG
ITALY


CZECH
REPUBLIC
40%

PORTUGAL
Correlation coefficient = 0.80
R
TURKEY

2
= 0.64
30%
$6
$11
$16
$21
$26
$31
Gross National Product Per Capita, 1999
$36
Thousands of U.S. Dollars, Purchasing Power Parity
Source: Calculated from OECD data.
5
Share of Skilled Workers
in Sector Employment


In manufacturing, skilled workers
account for 20 percent of total
sector employment
The share of skilled workers in
numerous services sectors lies
above 30%
6
Share of Skilled Workers
in Sector Employment
Sector
Computer and related activities
Research and development
Insurance and pension funding
Auxiliary financial activities
Financial intermediation
Other business activities
Electricity gas
Post and telecommunication
Wholesale trade
share of skilled workers
In sector employment
72.1
71.3
46.4
41.6
40.9
38.8
32.3
30.1
30.1
7
Relative Wage Levels in Services
Sectors: Percentage Difference With Wages in
Manufacturing, Selected Countries and Sectors
21.9
Mexico
9.6
New Zealand
9.5
Australia
6.5
United
Kingdom
5.9
Switzerland
5.9
Spain
5.1
Norway
5.1
France
39.3 Financial intermediation
28.2
17.6
15
7.9
Health and social work
Other community, social & personal
Construction
Netherlands
-13.2
Austria
0
Real estate
3.3
Wholesale & retail trade, repairs
-13.4
-10
Education
Transport, storage & communication
-8.2
-20
Public administration & defence
3.8
-1.4
4.1
Electricity, gas and water supply
10
Percent
20
30
Hotels and restaurants
-28.5
-40 -30 -20 -10
0
10 20 30 40 50
Percent
Converging Trends in Services Trade
Share of services in total trade, 1980-2000
25
20
Percent
15
10
5
Rest of World
0
1980
OECD Countries
1985
1990
OECD Countries
1995
Rest of World
2000
Degree of
Liberalisation,
Regulatory Reform
and Market Structure
in Selected Services
Sectors:
Trends in OECD
Countries
10
Degree of Liberalisation, Regulatory
Reform and Market Structure in
Selected Services Sectors


Fully/largely competitive industries versus
industries with non-competitive segments
 Road freight, retail distribution and air
travel industries versus
 Electricity, railways, fixed telephony
Dimensions of liberalisation, regulation and
market structure:
 Barriers to entry into competitive
segments of the industry
 Public ownership
 Degree of market competition
 Degree of vertical integration (electricity)11
Fully/largely Competitive Industries
Road freight industry
 Beyond
lifting entry restrictions, less
extensive deregulation than in other
industries
 By 1998 barriers to entry and
services constraints had been
virtually eliminated
 Some price controls and statecontrolled trucking companies still
remain in a few countries
12
Fully/largely Competitive Industries
Air travel industry
 Most
striking regulatory changes
 By 1998, domestic and regional
routes were liberalised and airlines
were given the freedom to set fares
 Public ownership significantly reduced
 Highly regulated bilateral air service
agreements between governments
13
Services Liberalisation in OECD
Countries
Figure 1. Regulatory reform in OECD countries
Fully or largely competitive industries
Road freight
Percentage of OECD countries
High regulation
100
80
Medium regulation
Price
controls
Barriers to
entry
Service
restrictions
Low regulation
Public
ownership
60
40
20
20
40
60
80
100
1975
1990
1998
Air passenger transport
Percentage of OECD countries
120
1975
1990
1998
1975
1990
1998
1975
1990
1998
1
Service
restrictions
Barriers to
entry
Public
ownership
Price
controls
100
80
60
40
20
20
40
60
80
100
1975
1990
1998
1975
1990
1998
1975
1990
1998
1975
1990
1998
Notes : See annex for details on the construction of the indicators.
High regulation : Entry is restricted, public ownership is substantial and prices or services are set or approved by a regulatory authority.
Medium regulation : Some limited entry is allowed, public ownership is limited and businesses have some freedom to set prices or services.
Low regulation : Public ownership is very limited and businesses are free to entry and have full control over prices and services they supply.
1. Domestic and regional routes.
130
110
90
70
50
30
10
-10
-30
-50
1986
1990
1998
1986
1990
1998
1986
Source: OECD, Regulatory reform, privatisation and competition policy, 1992; and OECD International Regulation Database.
Industries With Noncompetitive Segments
Electricity, Railways, Fixed Telephony




Changing regulatory approach
General movement towards lower
barriers to entry and private ownership
Strongest liberalisation in
telecommunications
Entry liberalisation and privatisation were
much less pronounced in railways and
electricity supply
15
Services Liberalisation in OECD Countries
Figure 3. Regulatory reform in OECD countries
Industries with non-competitive segments
Electricity
130
110
90
70
50
30
10
10
30
50
140
High regulation/vertical integration
1986
1990
120
1998
Medium regulation/limited vertical unbundling
1985
1991
1998
Barriers to entry
Industry integration
Low regulation/vertical unbundling
1985
1990
1
1998
Public ownership
Percentage of OECD countries
100
80
60
40
20
20
40
60
80
100
1986
1990
1998
1986
1990
1998
1986
1990
1998
Telecommunications2
High regulation/no competition
140
120
Percentage of OECD countries
Medium regulation/some competition
Market structure
100
Low regulation/competitive
Barriers to entry
Public ownership
80
60
40
20
20
40
60
80
100
1985
1990
1998
1985
1990
1998
1985
1990
1998
Railways
High regulation/no competition
140
120
Medium regulation/some competition
Market structure
100
Percentage of OECD countries
Low regulation/competitive
Public ownership
Barriers to entry
80
60
40
20
20
40
60
80
100
1985
1990
1998
1985
1990
1998
1985
1990
1998
Notes : See annex for details on the construction of the indicators.
High regulation indicates that access to competitive markets is restricted and the supplier(s) of the good or service is (are) fully state-owned.
Medium regulation indicates that some limited market access is allowed and the supplier(s) is (are) partially private.
Low regulation indicates that market access is free and the supplier(s) is (are) private.
1. In electricity generation.
2. Fixed telephony: trunk and international.
Source:
OECD International Regulation Database.
16
A Map of Regulatory Environments in Services Sectors
C o m p etitive ind ustries
R eta il
distributio n
Road
freig ht
N etw o rk ind ustries
M o bile
telepho ny
A ir pa sseng er
tra nspo rt
F ixed
telepho ny
2
E lectricity
R a ilw a y s
A ustra lia
U nited Sta tes 3
Sw eden
U nited K ing do m
G erma ny
N etherla nds
-
N ew Zea la nd
F inla nd
N o rw a y
-
K o rea
-
C a na da
-
Irela nd
-
M exico
Icela nd
-
D enma rk
-
-
-
B elg ium
J a pa n 4
-
A ustria
F ra nce
-
Sw itzerla nd
-
C zech R epublic
-
H ung a ry
-
P o rtug a l
-
P o la nd
Spa in
Ita ly
-
T urkey
-
G reece
V ery lib eral.
R estrictive.
Lib eral.
V ery restictive.
1 . Th e tab le p rovid es a p artial u p d ate of in form ation th at first ap p eared in N icoletti (2 0 0 1 ). Th e p artial u p d ate is b ased on in form ation p rovid ed b y a n u m b er of M em b er
cou n tries on reform s u n d ertak en sin ce 1 9 9 8 A com p lete u p d ate for all M em b er cou n tries h as n ot b een d on e. Th e tab le su m m arizes a n u m b er of d etailed in d icators wh ich are set
on a scale from 0 to 6 accord in g to an in creasin g d egree of restriction s to com p etition in each sector. D etailed in form ation on regu latory con d u ct is th en su m m arized b y u sin g
statistical tech n iq u es th at d eterm in e th e ap p rop riate weigh t for each of th e in d icators. C ou n tries are th en classified as "very lib eral", "lib eral", "restrictive", or "very restrictive"
accord in g to th eir d istan ce from an O E C D m ean .
2 . Lon g d istan ce (in tern ation al an d tru n k ) on ly.
3 . Th e in d icators for th e retail d istrib u tion an d m ob ile telep h on y in d u stries were p artially estim ated .
4 . Th e in d icator for th e retail d istrib u tion in d u stry was p artially estim ated .
S ourc e : N ic oletti (2001).
17
A map of regulatory environments in
services sectors - Conclusions


Dispersion of regulatory
approaches within major services
industries and among countries
Wide scope for further reform in
OECD countries continues to exist
18
Economy-wide
Benefits Arising from
Services Liberalisation
and Regulatory
Reform:
Outcomes in OECD
Countries
19
Economy-wide
Outcomes - Impact on
GDP


Empirical evidence indicates significant and
positive effects of liberalisation and regulatory
reform on the levels and growth rates of GDP
OECD study: The long-run potential output gains
(over a period of 15 to 20 years) varied from 1 per
cent for the United States to 5-6 per cent for
Japan, reflecting the different state of existing
regulation in different countries
20
Regulatory Reform and Performance
8 OECD
countries
long-run (15 to
20 years)
United States
Regulatory
reform in
Japan
 electricity
 air travel
Germany
 road freight
 telecommuni
France
cations
 retail
United Kingdom
distribution
Impact on GDP
growth
0.9
5.6
4.9
4.8
3.5
Netherlands
3.5
Spain
5.6
Sweden
3.1
21
Welfare Gains From
Liberalising Trade in Services


Modelling liberalisation of services trade
 Additional data requirements
 Different modelling frameworks than
those used for analysing goods
liberalisation
Large welfare gains
 US$ 130 billion (or 0.46 percent of world
real income)
(Dee and Hanslow (2000))
 Powerful impact on agriculture and
manufacturing through inter-sectoral
linkages in each economy
22
Product market regulations influence
employment rates
Employment rates in non-agricultural business sector and regulations, 1998
Employment rate
60
AUT
DEU
USA
AUS
GBR
55
CHE
CAN
DNK
50
NLD
PRT
SWE
NZL
45
BEL
FIN
ESP
40
NOR
ITA
FRA
Correlation coefficient -0.68
t-statistic -3.81
GRC
35
0.4
0.6
0.8
1
1.2
1.4
1.6
1.8
2
2.2
2.4
Product market regulation, economy-wide
Employment rate
60
55
AUT
DEU
GBR USA
AUS
CHE
CAN
DNK
50
NLD
NZL
SWE
NOR
PRT
ITA
BEL
45
FIN
ESP
FRA
40
GRC
Correlation coefficient -0.53
t-statistic -2.60
35
1
1.5
2
2.5
3
3.5
4
4.5
5
Product market regulation, non-manufacturing industries
5.5
Macroeconomic Effects - Impact on
Employment



Pro-competitive regulations in services sectors
are positively correlated with employment
rates
Pro-competitive product market regulations in
Australia, the United Kingdom and the United
States have been accompanied by a relatively
high private sector employment rate
Relatively stringent state control, barriers to
entrepreneurship, and/or barriers to foreign
trade and investment in France, Greece, Italy
and Norway have contributed to lower private
sector employment rate performances
24
Pro-competitive regulatory reform fosters
employment
The contribution of product market liberalisation to changes
in the employment rate, 1978-1998
(Percentage point change)
3.0
2.5
2.0
1.5
1.0
0.5
G
re
ec
e
It
al
y
Sp
a
Ir in
el
a
P nd
or
tu
g
C al
an
ad
A a
us
tr
i
F a
ra
nc
e
Ja
p
Sw an
N e
et d
he en
rl
an
B ds
el
gi
u
N m
or
D wa
U enm y
ni
te ar
d k
St
G ate
er s
m
A an
us y
tr
a
U
ni F lia
te in
d la
K n
N ing d
ew d
o
Z m
ea
la
nd
0.0
Pro-competitive
Regulatory Reform
Fosters Employment



Regulatory reforms have played a significant
role in increasing employment in the OECD
area
Product market reforms in New Zealand and
the United Kingdom have added around
2½ percentage points to their employment
rate in the non-agricultural business sector
over the 1978-98 period
Countries where regulatory reform has made
more modest progress have experienced
correspondingly smaller employment gains,
with Greece, Italy and Spain only adding
around ½ to 1 percentage point to their
employment rate via such reforms
26
Pro-competitive Regulations
Enhance Innovative Activity



Pro-competitive
product
market
regulations have a positive effect on
R&D intensity in manufacturing
Pro-competitive regulations explain more
than one third of the higher R&D
intensity in the United States, Japan,
Germany and Sweden relative to the
OECD average and made a large
positive contribution in the United
Kingdom, Canada and Ireland
The opposite effect was particularly
strong in Italy, Greece, France and
27
Belgium
Pro-competitive Regulations Enhance
Innovative Activity
Contribution of product market regulation to differences in R&D intensity
Percentage deviations from OECD average
Per cent
150
Product market
regulation
Other factors (2)
100
Total
50
0
-50
e
or
tu
ga
l
ly
ec
P
G
re
It
a
Ja
pa
n
Sw
U
e
ni de
te n
d
St
at
es
F
in
la
nd
F
ra
n
G ce
er
m
an
B y
el
gi
um
A
us
tr
ia
D
U
e
ni nm
te
d ar
K k
in
gd
om
N
or
N wa
et
he y
rl
an
ds
Ir
el
an
d
C
an
ad
a
Sp
ai
n
-100
Economy-wide Effects Preliminary Conclusions

Liberalisation and pro-competitive
regulatory reform:
 Generate
significant gains in output
growth and welfare
 Raise overall employment rates
 Stimulate innovative activity in the
long run
29
Industry-level Benefits
Arising from Services
Liberalisation and
Regulatory Reform

Overwhelming cross-industry
evidence that liberalisation of entry
and prices has improved static and
dynamic efficiency, enhanced
quality and lowered prices to
consumers
30
Telecommunications


Extensive liberalisation and regulatory
reforms
ABT - significant role in the opening of
markets for telecommunication services
 Global revenue reached
$US192 billion in 1999, and
$US230 billion in 2000,
( Annual increase of 25 per cent)
 650
million mobile cellular subscribers
world-wide in 2000, compared with 214
million in 1997, a number the ITU predicts
will grow to 1 000 million by 2005
31
Telecommunications


Degree of market competition and time to
liberalisation - two main explanations for
the differences in output growth and prices
among OECD countries
The good price performance of the UK,
whose prices are estimated to be 40 percent
lower than the OECD average, can be
explained mainly by its regulatory and
market environment accounting for 35
percentage points for this difference
32
Electricity



Important new GATS issue
Most countries have just begun to
consider and to implement regulatory
reform in the electricity supply industry
Most liberal countries:


United Kingdom, Finland, New Zealand,
Norway and Sweden
Least liberal countries:

Belgium, Canada, France, Greece,
Ireland, Italy, Netherlands, Portugal and
Spain
33
Electricity



Estimated price impacts of regulation
range from 0 to 35 per cent, with a mean
of 13 per cent
Lowest overall price impacts (0%) :
 The United Kingdom, Norway,
Finland, Sweden, Australia, New
Zealand
Highest price impacts (25-35%):
 Iceland, Switzerland, Turkey
34
Air Passenger Traffic


Wide ranging reforms implemented by
OECD economies
Variation across countries and routes
 The
United States and the United
Kingdom had gone farthest with
liberalisation
 Poland
and Turkey had barely
started regulatory reforms in this
industry
35
Air Passenger Traffic


Price of average airfares in the united states,
the first country to engage in far-reaching
airline deregulation, has dropped from 14.4
cents per mile in 1970 to 7.89 cents per mile
in 1997 (in 1982 dollars)
Removal in 1993 of bilateral restrictions on
the free access to other EU markets for air
transport services, price restrictions and slot
allocations resulted in the issuing of nearly
800 new operating licenses, notably to small
airlines. Demand for air transport has in turn
risen about 20 per cent
36
Air Passenger Traffic


Estimated price impacts of restrictions in
international passenger transport vary
between economies — ranging from 3 to
22 per cent for discount fares
United States has the lowest price impacts,
reflecting the liberalisation measures
adopted in its open skies agreements
37
Retail Distribution


Outlet restrictions distorted industry structure
and kept prices high (e.g. in Japan)
Empirical research hints that liberalisation of
entry and opening hours may increase industry
employment and lower prices
38
Retail Distribution


Liberalisation of entry, shop opening hours
and zoning determined price decreases of

2.0 percent in the Netherlands

0.6 percent in Sweden
Liberalisation measures determined increases
in employment:


15000 jobs in the Netherlands and
1.3 percent (full time equivalent) in Germany
39
Industry-level
Outcomes: Effects on
Employment

The effects on employment vary according to
the industry and the country concerned:

Liberalisation had favourable impact in road
freight and telecommunications in several
countries
(Mexico
and
Korea
for
telecommunications and United States and
Mexico for road freight)

Evidence from the united states suggests that
in rail freight post-reform efficiency gains
were matched by a substantial decrease in
employment
40
Conclusions(1)

Favourable outcomes in those OECD countries
where
competition-enhancing
regulatory
reforms in service industries have gone further:
 Telecommunications
and electricity supply
have become more efficient and cheaper

Air transport networks have
modernised and made more efficient
been
 Airfares
for all categories of travellers
declined substantially
41
Conclusions(2)

Areas where a deepened commitment to regulatory reform and to
liberalisation could contribute substantially to improve economic
performance and raise living standards in the OECD area

The elimination of restrictive provisions concerning entry
and/or investment in competitive service industries, such as
retail distribution

The opening up of international air travel routes to competition
and the elimination of ownership restrictions in airline
companies

The deepening of liberalisation in telecommunications

The acceleration of reforms in the electricity supply industry
42