Key takeaways from the 2023-2024 PMR indicators by OECD

Key takeaways from the 2023-2024 update of the OECD Product Market Regulation indicators

Takeaway 1

The Product Market Regulation indicators show that some OECD countries have taken steps to reduce regulatory barriers to the entry and growth of firms. However, progress has been confined to some areas, and the overall pace of reform has declined overtime. Hence, more can still be done to foster procompetitive regulatory reforms to boost labour productivity, business dynamism, and employment.

Takeaway 2

Several countries have made it easier to start a business, but red tape persists. Streamlining processes, embracing digital tools, and reducing administrative requirements could encourage the entry of innovative firms and foster job creation.

Takeaway 3

In many countries, the service sector –despite its rising importance in the economy –is stifled by restrictive regulations. Lifting them is a pressing policy priority to foster productivity and growth.

Takeaway 4

The still widespread lack oftransparency and accountability in lobbying activities harms market competition, as it can tilt the level playing field and favour larger and well-resourced firms.

Takeaway 5

In many countries, commercial SOEs are still partially insulated from market discipline and, often, not effectively shielded from political interferences. This may discourage entry by private firms.

Takeaway 6

Data-enabled digital platforms are gaining economic prominence, but these new markets are characterised by high barriers to entry and are oftenvery concentrated. This can lead to limited competitive pressures and reduced incentives to innovate. While countries are increasingly addressing these competition concerns, significant differences still exist.

Introduction

A regulatory environment that promotes competition can deliver many benefits. By encouraging the entry and growth of new and innovative businesses, competition raises the incentives for firms to innovate and adopt leading technologies. Competitive product markets improve productivity, employment, and living standards.

The OECD Product Market Regulation (PMR) indicators assess the alignment of a country’s regulatory framework with international best practices. The economy-wide indicator measures the distortions to competition that can be induced by the regulatory barriers to entry and expansion faced by firms across the economy, as well as by the involvement of the state in the economy. Sector-specific indicators measure these distortions in particular sectors.Figures A1 and A2 in the Appendix outline the structure of these indicators.

For 25 years, these indicators have been the leading metric of pro-competitive regulatory settings in OECD countries and are a key determinant of long-run growth. In this note, we report the state of play in all OECD countriesandin 9 other world economies1 by identifying 6 key facts. These key factsdescribe broad developments in product market regulations across these countries that policymakers should consider. Individual country notes2 provide more detailed information on country-specific developments.

Fact 1: Product market regulations vary across countries with implications for growth

Figure 1 shows the economy-wide PMR indicator for all OECD countries and 9 other major world economies. PMRs are relatively cumbersome in countries such as Türkiye, China, and South Africa. By contrast, PMR is more streamlined and growth-friendly in Lithuania, Sweden, and Ireland. The figurealso shows that there has been some reform activitysince the last update in 2018, although reforms have been uneven and confined to a few specific areas, as opposed to broad-based.

1 These countries are: Brazil, China, Indonesia, Peru, South Africa and the EU member states that are not OECDmembers (excluding Romania).

2 Individual country notes are available on the OECD PMR webpage.

Figure1. PMR indicators in this update and in the previous one 3

Indicator valuesincrease inthe stringency of the regulatory environment

Source: OECD PMR database and OECD-WBGPMR database for 2023/2024 and 2018/2019.

*The statistical data for Israel are supplied by and under the responsibility of the relevant Israeli authorities. The use of such data by the OECD is without prejudice to the status of the Golan Heights, East Jerusalem and Israeli settlements in the West Bank under the terms of international law.

#Note by Türkiye: The information in this document with reference to “Cyprus” relates to the southern part of the Island. There is no single authority representing both Turkish and Greek Cypriot people on the Island. Türkiye recognises the Turkish Republic of Northern Cyprus (TRNC). Until a lasting and equitable solution is found within the context of the United Nations, Türkiye shall preserve its position concerning the “Cyprus issue”.

Note by all the European Union Member States of the OECD and the European Union: The Republic of Cyprus is recognised by all members of the United Nations with the exception of Türkiye. The information in thi s document relates to the area under the effective control of the Government of the Republic of Cyprus.

Recent reform activity should be viewed over a longer time perspective. In the last 25 years, OECD countries have been actively pursuing product market reforms to eliminate regulatory obstacles to competition (Figure 2). The removal of regulatory barriers to competition has been a key factor driving economic growth and the productivity boom observed in many countries in the late 1990s and early 2000s. However, since then, there has been a slowdown in reform momentum, leaving a range of barriers to competition unaddressed. It is now time to elevate these important reforms on the political agenda to reinvigorate business dynamism and productivity growth, which has declined significantly in OECD countries over the past 20 years

3 The countries included in this update are all OECD members, plus Brazil, Bulgaria, China, Croatia, Cyprus, Indonesia, Malta, Peru and South Africa.

Figure2. Average value of the PMR indicator for OECD countries over the last 25 years

Indicator valuesincrease inthe stringency of the regulatory environment

Source: OECD PMR databasesfor 2023/2024, 2018/2019, 2013, 2008, 2003 and 1998.

Note: The averages include all OECD countries that are currently members of the OECD. The results are very similar if only the countries that were members of the Organisation in each specific year are considered.A change in methodology in 2018 implies that only trends can be compared.

There is much scope for product market reforms to rekindle productivity via innovation-led growth. Indeed, multi-factor productivity –which measures the ability of countries to produce more output with a given bundle of capital and labour –tends to be higher in countries with less stringent PMR (Figure 3). This negative correlation, corroborated by econometric analysis, reflects the idea that more competitive product markets tend to encourage innovation and the rapid diffusion of leading technologies by reducing barriers to the entry and growth of new innovative businesses (Andrews, Criscuolo and Gal, 2016). In the face of competition, incumbents are forcedto improve their productsand services, production processes, and management practices. The corollary is that inmore competitive product markets, lessproductive firms will face higher pressure to downsize or exit, which will release scarce resources and permit the growth of moreproductive and innovative firms.

Figure3.Relationship between PMR indicators and multifactor productivity (MFP)

Source: OECD PMR database for 2023/2024 and OECD Economic Outlook database 104.

Beyond multi-factor productivity, regulatory frameworks that lower barriers to entry and encourage a level playing field across firms are associated with positive effects on aggregate investment (Égert, 2018), both in high-income and emerging economies (Égert, 2016). Pro-competition PMR is also associated with higher employment (Griffith, Harrison and Macartney, 2007), particularly among vulnerable groups such as women and young workers (Gal and Theising, 2015), and GDP per capita (Causa, Hermansen and Ruiz, 2016), as lower entry barriers stimulate output via the creation and expansion of firms.

Fact 2: Administrative burdens on new firms could be further reduced

While some countries have made it easier to start a business –by simplifying procedures and lowering the associated costs –there remains considerable room for improvement. For example, most countries do not have a single website where entrepreneurs can find all the information needed to open a business, and only a few countries offer a one-stop shop whereall procedures can be completed(Table 1).

Administrative burdens on new firms remain high in many countries, such as Costa Rica and Bulgaria (Figure 4). These countries lack streamlined business registration procedures, and entrepreneurs must contact multiple public bodies to complete them. In addition, when they have a website to provide information on how to open new businesses, these do not include all the necessary requirements. By contrast, Canada and Greece provide an online one-stop shop where entrepreneurs can obtain all the information for starting a firm and complete all the necessary procedures.

Figure4.Administrative Requirements for New Firms

Indicator valuesincrease inthe stringency of the administrative requirements

Source: OECD PMR database and OECD-WBGPMR database for 2023/2024.

Note: The figure shows the low-levelPMR indicator that measures the administrative requirements that have to be undertaken to starta personally ownedenterpriseand a limited liability company.

Table1. Key results on the administrative burdens on new firms

Is there a single webpage providing information on all the procedures required to start a new company*?

How many public bodies need to be involved to start a new company*?

Source: OECD PMR database and OECD-WBGPMR database for 2023/2024 and 2018/2019.

Note: * Company refers toalimited liability company.

Some countries have made efforts to reduce administrative burdens in the last 5 years (Figure 5). For example, Türkiye has simplified the process of startinga (limited liability) company by introducing a website with comprehensive information on all required procedures, reducing costs, and eliminating the minimum paid-in capital requirement. Croatia has reduced the cost to start up a new business and streamlined the number of procedures required, with many more now available online. Similarly, Brazil 4 has enabled more procedures to be completed online through a single website and has reduced the cost of new business creation.

Despite these improvements, there is still considerable room for countries to simplify administrative processes, limit bureaucratic requirements, and reduce the costs associated with new business registration. New firms have a comparative advantage in commercialising new ideas and disproportionately drive net job creation. Therefore, creating a more business-friendly environment that facilitates entry is crucial for countries to address the twin challenges of digitalisation and decarbonisation.

Figure5. Reforms in administrative burdens on new firms since the last update

Indicator valuesincrease inthe stringency of the administrative requirements

Source: OECD PMR database and OECD-WBGPMR database for 2023/2024 and 2018/2019.

4 The information refers to the state of Sao Paulo, as Brazil is a federal country.

Fact 3: The service sector remains heavily regulated

The share of services in total employment has strongly increased over recent decades in all OECD economies and is projected to increase further (Sorbe et al.,2018). Ensuring that market regulations in this sector remain fit for purpose will become increasingly important for economic performance. Yet, in many OECD countries, the service sector still faces regulatory environments that limit entry and dampen competition, thereby restraining its full growth potential.

Cross-country differences in barriers to entry in the services sector are sizeable (Figure 6). In Portugal and Greece, the administrative requirements necessary to open a retail outlet are quite burdensome. While in South Africa these administrative burdens requirementslower, barriers to entry arise from the fact that representatives of trade and commercial interests are involved in decisions concerning individual authorisations for establishing new retail outlets. In all three countries, there are restrictions on the number and location of pharmacies, and entry in regulated professions is still tightly regulated, with negative consequences for employment, job mobility 5, as well asfor the competitiveness of firms in downstream industries that usethese services.

Figure6. Barriers to Entry in Service Sector

Indicator valuesincrease inthe stringency of the regulatory environment

Source: OECD PMR database and OECD-WBG PMR database for 2023/2024.

Note: The figure shows the low-level PMR indicator that measures the regulatory barriers that can restrict entry in retail trade and 6 professional services(notaries, lawyers, architects, engineers, real estate agents, and accountants).

5 Very recent reforms in Portugal, which are not reflected in the PMR database, may have reduced some of these constraints.

There is also potentialto reduce barriers to conduct in the services sector in many countries (Figure 7). For instance, in the retail sector, granting shops more freedom in organising seasonal sales and in choosing their opening hours, as well as easing end-of-business sales requirements could be beneficial. Fewer restrictions on shareholding, legal forms, and inter-professional cooperation could foster innovative business models and open up new sources of funding and management expertise for professional firms. Reducing tariff regulation and allowing advertisements could further cut costs for businesses heavily reliant on these services. The United Kingdom and Norway have already embraced many of these practices

Figure7.Barriers to Conduct in the Service Sector

Indicator valuesincrease inthe stringency of the regulatory environment

Source: OECD PMR database and OECD-WBG PMR database for 2023/2024.

Note: The figure shows the low-levelPMR indicator that measures the regulatory barriers that can restrict how firms can operate in retail trade and 6 professional services(notaries, lawyers, architects, engineers, real estate agents, and accountants).

In contrast to the administrative burdens on new firms, there has been virtually no reform activity inservices regulation since 2018. This is unfortunate given that there remains much scope for reform, which may partly explain the 40% gap in labour productivity vis-à-vis manufacturing that exist, on average,across OECD countries (Sorbe et al.,2018).

Fact 4: Few countries ensure transparency and accountability in lobbying activities

Lobbying regulation plays a critical role in ensuring that the interactions between interest groups and policymakers are open and transparent. However, many countries still lack adequate rules that guarantee the transparency and accountability of these interactions. This regulatory void can benefit incumbents and

well-funded corporations, enabling them to shape rules in their favour at the expense of smaller businesses and new entrants.

As governments are making greater use of industrial policies to boost economic growth, support strategic sectors, and promote innovation, there is a growing risk that lobbying may undermine the intended benefits (IMF, 2024). Lobbying can shift the focus of these policies away from their original objectives and, instead,serve the interests of influential interest groups, leading to misaligned priorities and ineffective policy outcomes. Lobbyingcan lead to the allocation of incentives to well-connected firms rather than those most capable of driving innovation and growth, thus perpetuating market dominance and stifling competition. These distortions can,in turn,hinder the natural process of competition and market selection that drives productivity improvements and fosters innovation.

Most countries still lack comprehensive legislation on lobbying activities and fail to impose essential disclosure requirements (Figure 8). Furthermore, more than half of the countries do not have rules on conflicts of interest for public officials or mandatory cooling-off periods when policymakers leave their posts. For example, Türkiye and Luxembourg impose almost no transparency obligations on lobbying activities, including no ethical rules on public officials. In contrast, a small group of countries including France, Ireland, and Chile, have made considerable efforts to regulate the interactions between policymakers and interest groups, although Chile still does not impose cooling-off periods on public officialsleaving office.

Figure8. Regulation of lobbying activities

Indicator valuesincrease in the absence of relevant regulations

Source: OECD PMR database and OECD-WBG PMR database for 2023/2024.

Note: The figure shows the overall score for the questions that measure the quality of lobbying regulationbroken down into their key components. These questions are included in the low-level PMR indicator Interaction with Stakeholders.

Some reforms have been implemented in this area since 2018 (Figure 9). For example, Estonia recently introduced a general law regulating the interactions between policymakers and interest groups, and it now requires some, albeit not all, public officials to disclose their agendas. Similarly, Germany has increased the scope of its lobbying law to include all types of interest groups, and it now requires policymakers involved in the regulatory process to disclose the identities of consulted lobbyists. Greece now mandates that interest groups record their details in a public register. And Iceland, though it still lacks a general lobbying law, has considerably expanded the ethical rules imposed on public officials, and it now requires policymakers to disclose the identity of the interest groups consulted in the regulatory process.

Figure9. Reforms in lobbying regulation

Indicator valuesincrease in the absence of relevant regulations

Source: OECD PMR database and OECD-WBG PMR database for 2023/2024 and 2018/2019.

Fact 5: State-owned enterprises are still partially insulated from market discipline and subject to political interferences

The importance of state ownership has grown significantly. Over the last twenty years, the share of stateowned enterprises (SOEs) in the top 500 global companies has tripled. By the end of 2022, the public sector held nearly 11% of the global market capitalization of listed companies, equivalent toroughly 10.6trillion US dollars, with public sector ownership exceeding 30% of listed equity in some markets. 6 Furthermore,

6 Source: Ownership and Governance of State-OwnedEnterprises: 2024, OECD publishing, forthcoming.

SOEs have a strong presence in strategic sectors, such as energy, critical minerals, essential infrastructure, technology, and finance.

Public ownership can bestow upon SOEs a series of advantages not afforded to their private counterparts. These advantages include access to cheap credit, regulatory and tax exemptions, and preferential treatment in procurement processes. Furthermore, SOEs may not be held to the same standards of transparency and disclosure as private firms. Their role in providing public services can also grant them the potential to crosssubsidise their commercial activities, further skewing the competitive balance. These unbalances can discourage private competitors from entering the market, ultimately stifling productivity and economic growth.

Effective governance mechanisms are essential to ensure that SOEs operate on a level playing field with private companies and that markets remain competitive and efficient. However, many countries still have room to make sure that their SOEs are protected from political interference and subject to the same market discipline as their private competitors (Figure 10). For example, in Mexico, SOEs can benefit from better financing opportunities and easier access to production inputs than their private counterparts. In Türkiye, there are no requirements to ensure the independence of SOE boards. By contrast, in Norway and Sweden, which are among the best performers,SOEs do not benefit from any special advantage due to their ownership status, and their management is well-protected from the risk of political interference, as active government officials, including politicians, cannot be elected as board members of SOEs.

Indicator valuesincrease as the governance of SOES becomes less competition-friendly

Source: OECD PMR database and OECD-WBG PMR database for 2023/2024.

Note: The figure shows the values of the low-level PMR indicatorthat measuresto what extent the corporate governance of SOEs ensuresfair competition with privately-owned firms in the markets where they compete.

Figure10.Governance of SOEs

Fact 6: Concentrated digital markets may undermine the innovation and productivity benefits of digitalisation

A new set of digitally-enabled data-intensive activities,such as search engines, online marketplaces, cloud computing, and app stores,is reshaping the environment in which business-to-business and business-toconsumer interactions occur. Due to strong network effects, durable data feedback loops, and large economies of scale and scope, these markets present unique challenges to competition and the efficient working of market mechanisms. Digital markets can easily teeter toward quasi-monopolies because, once a firm builds a substantial user base, the barriers to entry become quickly so high that they discourage rivals,no matter how innovative or efficient,from challenging incumbents.

To fully reap the benefits of digital technologies, it is key to foster access to data by innovative new entrants. OECD evidence shows that the combination of rising investment in data and increasing proprietary use of them, which thwarts the inherent capacity of data to be shared in a non-rival way across firms, has reduced the positive spillovers of intangible investments on productivity (Corrado et al., 2022).

These dynamics highlight the need for proactive ex-ante regulations to complement ex-post antitrust enforcement, preventing anti-competitive mergers, curbing entrenched dominance, and fostering an environment conducive to innovation. The PMR indicator on Digital Markets captures the extent to which countries have commissioned market studies to assess competition in digital markets, updated their merger regime for the digital age, subjected online platforms to fair trade and contestability measures, and implemented a range of pro-competitive measures pertaining to data use and access (Nicoletti et al., 2023).

This indicator shows that countries are beginning to analyze these markets and address the competition concerns that they raise, albeit at varying speeds (Figure 11). Most notably, while competition authorities in most countries have commissioned market studies to understand the issues, only EU member states, the United Kingdom,Türkiye, and China have introduced laws to address them.

Figure11.Product Market Regulation indicator on Digital Markets

Source: OECD PMR database and OECD-WBG PMR database for 2023/2024.

Note: The figure shows the PMR sector indicator that measures to what extent countries are making efforts to understand and address the specific competition challenges raised by the development ofdigital markets.

Appendix: Structure of the PMR indicators

Figure A1.Structure of the economy-wide PMR indicator

A2. Structure of the PMR sector indicators

Figure

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Key takeaways from the 2023-2024 PMR indicators

Product Market Regulation Indicators

Table of contents

Key takeaways from the 2023-2024 update of the OECD Product Market Regulation indicators

Introduction

Fact 1: Product market regulations vary across countries with implications for growth

Fact 3: The service sector remains heavily regulated

Figure6. Barriers to Entry in Service Sector

Figure7.Barriers to Conduct in the Service Sector

Figure8. Regulation of lobbying activities

Figure9. Reforms in lobbying regulation

Fact 5: State-owned enterprises are still partially insulated from market discipline and subject to political interferences

Figure11.Product Market Regulation indicator on Digital Markets