The Impact of Competition Policy on Productivity: an Empirical Approach

Transcription

1 The Impact of Competition Policy on Productivity: an Empirical Approach Brussels, 17/18 September Jarig van Sinderen Chief Economist

2 Contents Research together with Lilian Petit, Ron Kemp: impact of cartels on total factor productivity growth (TFP) (JCLE June 2015) Recent research: impact of competition authorities on labour productivity growth Recent calculations with MESEMET-2 model: impact outcome on economic performance in longer term

3 Research by Petit, Kemp and Van Sinderen TFP growth Calculations for total economy and for manufacturing and non-manufacturing Entry of cartel negative impact on TFPgrowth Exit of cartel positive impact, but very small Cartel presence has negative impact Impact between and So a cartel had between 2 and 3 percent negative impact on TFP growth in this period

4 Labour productivity: impact of competition authorities Strong evidence for a positive impact of competition on total factor productivity (Van der Wiel, 2010) Effect of different variables on the labour productivity is estimated by Donselaar (2011) Addition: indicator for competition policy based on the Global Competition Review (GCR) The coefficients represent percentage changes

5 Labour productivity estimation Original result Estimated equation C(1) Constant 0.03*** * C(2) Average length of education 0.40*** 0.376*** C(3) Labour market participation -0.43*** *** C(4) No. of worked hours per employed person -0.53*** *** C(5) Domestic public and private R&D capital 0.11*** 0.123*** C(6) Weight of the private R&D capital 0.60*** 0.656*** C(7) Interaction domestic R&D capital with domestic in worldly R&D capital 0.65*** 0.784*** C(10) Foreign public and private R&D capital 0.15*** 0.091** C(18) Catching-up variable -0.04*** *** C(20) Share of (medium)high-tech sectors 0.16*** 0.164*** C(21) Norway-specific variable 0.93*** 0.846*** C(23) Openness of the economy 0.07*** C(25) Net capital income quota 0.16** 0.088* C(27) State of the economy 0.69*** 1.057*** C(28) Weight of the current year within the state of the economy 0.51*** 0.305** C(29) Dummy for West-Germany 0.03** 0.056*** C(55) GCR ** C(56) Pre-GCR period ** R Period Country dummy s included Yes Yes No. of countries No. of observations Standard errors HAC (Newey-West) HAC (Newey-West)

6 Labour productivity Pre-GCR period: average effect (all countries have equal weight) is equal to (dummy) This is roughly equal to the effect of the average GCR score (3.5 * = 0.077) Compared to the pre- GCR period, countries with scores below 3.5 do worse, countries above 3.5 do better on productivity GCR score Effect Pre-GCR period * = * = * = * = * = 0.032

7 Labour productivity An average score (3.5 in the dataset) gives a more or less neutral effect on labour productivity A below average score has a negative impact on labour productivity, whereas an above average score has a positive impact on labour productivity Conclusion: the good performance of competition authorities has a significant impact on labour productivity

8 Outcome estimation: model calculations Assumption; Effect when a merger is prohibited: 3% of the turnover in the relevant market (merger control) Assumption: Effect for prosecuting cartels and abuses of dominant positions: 10% of the turnover of the parties involved (competition cases) Merger control Competition cases Total Number of cases Minimum effect Maximum effect 125,000, ,000,000 Average effect 9,000,000 18,000,000 Total effect ,500,000,000 2,000,000,000

9 Outcome estimates: anticipation effect Mergers: for every 100 merger notifications, 13 merger plans are cancelled Cartels: for every prosecuted cartel, 5 cartels are being prevented Merger control Competition cases Total Number of cases Total effect 500,000,000 1,500,000,000 2,000,000,000 Anticipation effect 1,300,000,000 7,700,000,000 9,000,000,000 Total effect incl. anticipation effect 1,800,000,000 9,200,000,000 11,000,000,000

10 MESEMET-2 model The outcome is treated as a reduction in income taxes in the base year This is in our analysis either compensated by a cut in government expenditures to get a neutral financial balance or by an increase in the budget deficit The results are measured as a percentage deviation from the baseline (except for the financial balance variable, which is given as a deviation in percentage of the national income) and are cumulative

11 MESEMET-2 model Impulse: 2 billion with compensation in government consumption GDP YT Export B Import M Consumption CP Investments IP Financial balance DF Employment LT Price level P Real gross wage WT Profit before tax WVB

12 MESEMET-2 model Impulse: 2 billion without compensation GDP YT Export B Import M Consumption CP Investments IP Financial balance DF Employment LT Price level P Real gross wage WT Profit before tax WV

13 MESEMET-2 model Impulse: 11 billion GDP YT Export B Import M Consumption CP Investments IP Financial balance DF Employment LT Price level P Real gross wage WT Profit before tax WVB

14 What might impact be? In long-term impact on growth between 0.12 and 0.16 percent Positive impact on employment between 0.16 and 0.18 percent This implies a small negative impact on labour productivity growth

15 Conclusion Impact on productivity is inconclusive Estimations: positive but small impact Model simulation: negative but small impact Mostly some impact of cartels and of authorities in empirical research In model calculations impact on productivity small but negative Impact on economic and employment growth positive Further model analysis needed