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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.

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services liberalisation and evolving regulation trends and outcomes in oecd countries

ServicesLiberalisation 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

  • Highlight features of liberalisation and regulatory reform in OECD countries
  • Illustrate economy-wide and sectoral benefits arising from services liberalisation and regulatory reform
stylised facts services source of significant value added productivity growth and trade benefits
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
services account for a substantial and rising share of output and employment in the economy
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
share of skilled workers in sector employment
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%
share of skilled workers in sector employment7
Share of Skilled Workers in Sector Employment

Sectorshare of skilled workers

In sector employment

Computer and related activities 72.1

Research and development 71.3

Insurance and pension funding 46.4

Auxiliary financial activities 41.6

Financial intermediation 40.9

Other business activities 38.8

Electricity gas 32.3

Post and telecommunication 30.1

Wholesale trade 30.1


Relative Wage Levels in Services Sectors: Percentage Difference With Wages in Manufacturing, Selected Countries and Sectors

converging trends in services trade

Converging Trends in Services Trade

Share of services in total trade, 1980-2000

Degree of Liberalisation, Regulatory Reform and Market Structure in Selected Services Sectors:Trends in OECD Countries
degree of liberalisation regulatory reform and market structure in selected services sectors
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)
fully largely competitive industries
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 state-controlled trucking companies still remain in a few countries
fully largely competitive industries13
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
industries with non competitive segments electricity railways fixed telephony
Industries With Non-competitive 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
a map of regulatory environments in services sectors conclusions
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

Economy-wide Benefits Arising from Services Liberalisation and Regulatory Reform: Outcomes in OECD Countries
economy wide outcomes impact on gdp
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
welfare gains from liberalising trade in services
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
macroeconomic effects impact on employment
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
pro competitive regulatory reform fosters employment
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
pro competitive regulations enhance innovative activity
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 Belgium
economy wide effects preliminary conclusions
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
industry level benefits arising from services liberalisation and regulatory reform
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
  • 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
  • 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
  • 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
  • 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
air passenger traffic
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
air passenger traffic36
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
air passenger traffic37
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
retail distribution
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
retail distribution39
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
industry level outcomes effects on employment
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
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 been modernised and made more efficient
    • Airfares for all categories of travellers declined substantially
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