The Structural Reforms that Matter: Going for Growth with the OECD

Transcription

1 The Structural Reforms that Matter: Going for Growth with the OECD NIPFP-DEA Meetings New Delhi, India 1 September 2010 Sean Dougherty Senior Economist Head of Going for Growth Team OECD Economics Department

2 Promoting structural reforms Encouraging countries to undertake structural reforms is the OECD s mandate Main vehicle is Going for Growth, plus country surveys and thematic work Going for Growth is being extended to major non-members, including India Inputs into the G-20 s Framework for Stronger, Sustainable and Balanced Growth 2

3 The OECD as a convergence club Gap in the average growth rate , per cent U S NOR LUX Gap in GDP per capita relative to the US in 1998, per cent 2 3

4 The Going for Growth process Systematic policy and performance benchmarking using indicators Identifies five priorities per country Follow-up and review To promote long-run economic growth 4

5 The basic growth accounting framework G D P p e r c a p i t a L a b o u r u t i l i s a t i o n ( h o u r s w o r k e d p e r c a p i t a ) L a b o u r p r o d u c t i v i t y ( o u t p u t p e r h o u r w o r k e d ) H o u r s w o r k e d p e r w o r k e r E m p l o y m e n t r a t e C a p i t a l d e e p e n i n g ( c a p i t a l p e r h o u r w o r k e d ) M u l t i - f a c t o r p r o d u c t i v i t y S t r u c t u r a l u n e m p l o y m e n t r a t e L a b o u r f o r c e p a r t i c i p a t i o n Q u a l i t y o f l a b o u r ( s k i l l m i x ) Q u a l i t y o f c a p i t a l ( v i n t a g e a n d a s s e t c o m p o s i t i o n ) P u r e t e c h n i c a l p r o g r e s s L a b o u r m a r k e t p o l i c i e s O t h e r p o l i c i e s P r o d u c t m a r k e t p o l i c i e s 5

6 Sources of differences in living standards 6

7 Going for Growth methodology Three steps: Identify performance weaknesses associated with GDP/capita Identify policy weaknesses based on policy indicators and analysis establishing links between policy and performance 3 of the 5 based primarily on indicators Select most important policy weaknesses as priorities for reform

8 Matching of performance and policy for France Performance gap (standard deviation) Gap in policy (standard deviation) M a n y c a s e s o f b e lo w -a v e ra g e p e rfo rm a n c e a n d p o lic y 8

9 Matching of performance and policy for United States Performance gap (standard deviation) F e w e r c a s e s o f b e lo w -a v e ra g e p o lic y a n d p e rfo rm a n c e 9

10 Going for Growth policy recommendations evolve over time Going for Growth edition Pre-enlargement OECD OECD in 2011 BRIICS Productivity Product market regulation Agriculture Human capital Other policy areas Total Labour utilisation Average and marginal taxation on labour income Social benefits Labour market regulation and collective wage agreements Other policy areas Total Overall Overall (number of priorities)

11 Income differentials reflect sizeable productivity gaps in major non-oecd countries 11

12 Going for Growth preliminary policy recommendations for India Reduce trade and FDI barriers as well as administrative burdens Improve educational attainment Improve labour market flexibility in the formal sector Enhance infrastructure provision Undertake wide-ranging financial sector reforms 12

13 The stance of product market regulation is highly restrictive (stringency in 2008) Index 3.5 State control Barriers to entrepreneurship Barriers to trade and investment

14 Tariff rates are still relatively high (rate in 2008) Average tariff rates (27) (72) (76) Bound rate MFN applied rate Applied effective rate (82) (35) (138) (125) (222) (76)(79) (163) (114) (162) (206) (237) (257) (204) (229) (348) (522) (209) 14

15 Public expenditure on education (spending in 2006) Per cent of GDP

16 Secondary level education gaps are still substantial for the younger cohorts (attainment in 2007) Per cent

17 Job protection legislation is highly restrictive (stringency in 2008) Index Protection of permanent workers against dismissal Regulation on temporary forms of employment Specific requirements for collective dismissal * *Indicator for India does not fully capture the effects of collective dismissal regulation under the IDA act 17

18 Informality is very high (various estimates for mid-2000s) Share of informal employment Share of employment in the informal sector Country-specific measures of informality shares Per cent Brazil China India Indonesia South Africa Russia Mexico Turkey 18

19 Physical capital is at a relatively low level (breakdown of labour productivity gaps) ercentage gap for TFP age gap for al capital for al

20 Financial markets remain relatively shallow (domestic credit to the private sector in 2008) Per cent of GDP

21 G-20 Contributions Identifying reform priorities based on Going for Growth Estimating the impacts of structural reform Inputs into the G-20 s Framework for Stronger, Sustainable and Balanced Growth 21

22 Simulated impacts of structural reforms Definition of unit shock OECD average OECD standard deviation Simulated effect (unit changes) After 10 years Steadystate Simulated effect (onestandard deviation changes) After Steady-state 10 years Labour market policies Average replacement rate -10 ppt Employment protection legislation (EPL) -1 index point Maternal leave weeks +10 weeks Childcare benefits -0.1 ppt Childcare support +0.1 ppt Standard retirement age +1 year Implicit tax on continued work -10 ppt Average weekly normal hours and overtime +1 hour Taxation Average tax wedge -10 ppt Marginal tax -10 ppt Product market regulation Gas -0.1 index point Electricity -0.1 index point Road -0.1 index point Rail -0.1 index point Air -0.1 index point Post -0.1 index point Telecommunications -0.1 index point Overall -0.1 index point Human capital PISA score +10 points * Average years of schooling (16-24 cohort) +1 year

23 OECD is looking at the current account effects of structural reforms Increase in productivity growth Total saving Total investment Current account Product market deregulation + (-) Improvement in coverage/quality of social welfare system Increase in statutory retirement age Lowering of employment protection for regular workers Surplus countries (2009) with priority in these areas Austria, Belgium, China, Chile, Estonia, Germany, Denmark, Israel, Indonesia, Japan, Korea, Luxembourg, Norway, Russia, Switzerland, Hungary - (-) Switzerland, Russia, Hungary - (-) Finland, Belgium Financial market deregulation 0/- +/- (+/-) Germany, Japan, Korea, Luxembourg, Netherlands, Sweden, Chile 23

24 Balancing multiple objectives Fis cal deficit Product m arket regulation State control of potentially com petitive activities Support to agriculture Efficiency public spending in health and pensions Retirem ent age Change in tax structure : increase indirect taxes and : Corporate incom e taxes Tax wedge Unem ploym ent benefits Dis ability/ s icknes s benefits FDI res trictions External s urplus External deficit Fis cal s urplus Public spending (education, innovation, infras tructure) ALMP s pending Tariffs on international trade 24

25 For more information 25