IDEAS home Printed from https://ideas.repec.org/a/eee/poleco/v59y2019icp354-368.html
   My bibliography  Save this article

The growth-maximizing level of regulation: Evidence from a panel of international data

Author

Listed:
  • Heckelman, Jac C.
  • Wilson, Bonnie

Abstract

Existing evidence suggests that regulation diminishes economic growth. In theory, however, regulation may be either growth-enhancing or diminishing. We therefore empirically revisit the relation between regulation and growth, allowing for both positive and negative effects. In an unbalanced panel of 132 countries over eight time periods, we find evidence of a hump-shape relation between regulation and growth. The estimates imply that for more than 95% of the sample the total effect of regulation on growth is positive. The estimates also imply that about 60% of the sample observations are associated with over-regulation, relative to the growth-maximizing level. Similar findings apply to the (majority) subsample of non-OECD nations in the dataset. However, for the (minority) subsample of OECD nations, both the total and marginal effects of regulation on growth are negative.

Suggested Citation

  • Heckelman, Jac C. & Wilson, Bonnie, 2019. "The growth-maximizing level of regulation: Evidence from a panel of international data," European Journal of Political Economy, Elsevier, vol. 59(C), pages 354-368.
    • Handle: RePEc:eee:poleco:v:59:y:2019:i:c:p:354-368
    DOI: 10.1016/j.ejpoleco.2019.05.001
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0176268018303355
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.ejpoleco.2019.05.001?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Haidar, Jamal Ibrahim, 2012. "The impact of business regulatory reforms on economic growth," Journal of the Japanese and International Economies, Elsevier, vol. 26(3), pages 285-307.
    2. Dawson, John W., 2003. "Causality in the freedom-growth relationship," European Journal of Political Economy, Elsevier, vol. 19(3), pages 479-495, September.
    3. Durlauf, Steven N. & Johnson, Paul A. & Temple, Jonathan R.W., 2005. "Growth Econometrics," Handbook of Economic Growth, in: Philippe Aghion & Steven Durlauf (ed.),Handbook of Economic Growth, edition 1, volume 1, chapter 8, pages 555-677, Elsevier.
    4. George J. Stigler, 1971. "The Theory of Economic Regulation," Bell Journal of Economics, The RAND Corporation, vol. 2(1), pages 3-21, Spring.
    5. Jonathan Temple, 2005. "Dual Economy Models: A Primer For Growth Economists," Manchester School, University of Manchester, vol. 73(4), pages 435-478, July.
    6. Giuseppe Nicoletti & Stefano Scarpetta, 2003. "Regulation, productivity and growth: OECD evidence [‘A model of growth through creative destruction’]," Economic Policy, CEPR, CESifo, Sciences Po;CES;MSH, vol. 18(36), pages 9-72.
    7. Justesen, Mogens K., 2008. "The effect of economic freedom on growth revisited: New evidence on causality from a panel of countries 1970-1999," European Journal of Political Economy, Elsevier, vol. 24(3), pages 642-660, September.
    8. Randall G. Holcombe, 2015. "Unanimous consent and constitutional economics," Chapters, in: Jac C. Heckelman & Nicholas R. Miller (ed.), Handbook of Social Choice and Voting, chapter 3, pages 35-53, Edward Elgar Publishing.
    9. Becker, Gary S., 1985. "Public policies, pressure groups, and dead weight costs," Journal of Public Economics, Elsevier, vol. 28(3), pages 329-347, December.
    10. Levine, David K. & Modica, Salvatore, 2017. "Size, fungibility, and the strength of lobbying organizations," European Journal of Political Economy, Elsevier, vol. 49(C), pages 71-83.
    11. Chen, Yu-Fu & Funke, Michael, 2008. "Product market competition, investment and employment-abundant versus job-poor growth: A real options perspective," European Journal of Political Economy, Elsevier, vol. 24(1), pages 218-238, March.
    12. Karras, Georgios, 1996. "The Optimal Government Size: Further International Evidence on the Productivity of Government Services," Economic Inquiry, Western Economic Association International, vol. 34(2), pages 193-203, April.
    13. Djankov, Simeon & McLiesh, Caralee & Ramalho, Rita Maria, 2006. "Regulation and growth," Economics Letters, Elsevier, vol. 92(3), pages 395-401, September.
    14. Johnson, Noel D. & Koyama, Mark, 2017. "States and economic growth: Capacity and constraints," Explorations in Economic History, Elsevier, vol. 64(C), pages 1-20.
    15. Compton, Ryan A. & Giedeman, Daniel C. & Hoover, Gary A., 2011. "Panel evidence on economic freedom and growth in the United States," European Journal of Political Economy, Elsevier, vol. 27(3), pages 423-435, September.
    16. James Buchanan, 1990. "The domain of constitutional economics," Constitutional Political Economy, Springer, vol. 1(1), pages 1-18, December.
    17. Jac C. Heckelman & Bonnie Wilson, 2013. "Institutions, Lobbying, and Economic Performance," Economics and Politics, Wiley Blackwell, vol. 25(3), pages 360-386, November.
    18. Guglielmo Barone & Federico Cingano, 2011. "Service Regulation and Growth: Evidence from OECD Countries," Economic Journal, Royal Economic Society, vol. 121(555), pages 931-957, September.
    19. Jac C. Heckelman & Nicholas R. Miller (ed.), 2015. "Handbook of Social Choice and Voting," Books, Edward Elgar Publishing, number 15584.
    20. Jonathan R. W. Temple, 2005. "Growth and Wage Inequality in a Dual Economy," Bulletin of Economic Research, Wiley Blackwell, vol. 57(2), pages 145-169, April.
    21. Prato, Carlo & Wolton, Stephane, 2018. "Rational ignorance, populism, and reform," European Journal of Political Economy, Elsevier, vol. 55(C), pages 119-135.
    22. Peltzman, Sam, 1976. "Toward a More General Theory of Regulation," Journal of Law and Economics, University of Chicago Press, vol. 19(2), pages 211-240, August.
    23. Olson, Mancur, 1993. "Dictatorship, Democracy, and Development," American Political Science Review, Cambridge University Press, vol. 87(3), pages 567-576, September.
    24. Richard J. Cebula, 2011. "Economic Growth, Ten Forms of Economic Freedom, and Political Stability: An Empirical Study Using Panel Data, 2003–2007," Journal of Private Enterprise, The Association of Private Enterprise Education, vol. 26(Spring 20), pages 61-81.
    25. Gary S. Becker, 1983. "A Theory of Competition Among Pressure Groups for Political Influence," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 98(3), pages 371-400.
    26. Pranab Bardhan, 2016. "State and Development: The Need for a Reappraisal of the Current Literature," Journal of Economic Literature, American Economic Association, vol. 54(3), pages 862-892, September.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Heckelman, Jac C & Wilson, Bonnie, 2023. "Aid, Reform, and Interest Groups," MPRA Paper 118182, University Library of Munich, Germany.
    2. Bjørnskov, Christian, 2020. "Economic Freedom and the CO2 Kuznets Curve," Working Paper Series 1331, Research Institute of Industrial Economics.
    3. Bjørnskov, Christian, 2024. "Economic freedom and the greenhouse gas Kuznets curve," European Journal of Political Economy, Elsevier, vol. 82(C).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. James Broughel & Robert W. Hahn, 2022. "The impact of economic regulation on growth: Survey and synthesis," Regulation & Governance, John Wiley & Sons, vol. 16(2), pages 448-469, April.
    2. Lacroix, Jean & Méon, Pierre-Guillaume & Sekkat, Khalid, 2021. "Democratic transitions can attract foreign direct investment: Effect, trajectories, and the role of political risk," Journal of Comparative Economics, Elsevier, vol. 49(2), pages 340-357.
    3. Anderson, Gary M. & Halcoussis, Dennis & Johnston, Linda & Lowenberg, Anton D., 2000. "Regulatory barriers to entry in the healthcare industry: the case of alternative medicine," The Quarterly Review of Economics and Finance, Elsevier, vol. 40(4), pages 485-502.
    4. ., 2019. "Economic theory of non-territorial unbundling," Chapters, in: The Political Economy of Non-Territorial Exit, chapter 1, pages 14-38, Edward Elgar Publishing.
    5. Peppel-Srebrny, Jemima, 2021. "Not all government budget deficits are created equal: Evidence from advanced economies' sovereign bond markets," Journal of International Money and Finance, Elsevier, vol. 118(C).
    6. McShane, Michael K. & Cox, Larry A. & Butler, Richard J., 2010. "Regulatory competition and forbearance: Evidence from the life insurance industry," Journal of Banking & Finance, Elsevier, vol. 34(3), pages 522-532, March.
    7. Baharumshah, Ahmad Zubaidi & Slesman, Ly & Wohar, Mark E., 2016. "Inflation, inflation uncertainty, and economic growth in emerging and developing countries: Panel data evidence," Economic Systems, Elsevier, vol. 40(4), pages 638-657.
    8. Vahagn Jerbashian & Anna Kochanova, 2016. "The impact of doing business regulations on investments in ICT," Empirical Economics, Springer, vol. 50(3), pages 991-1008, May.
    9. Mauro Napoletano & Jean-Luc Gaffard, 2010. "Performances et politiques de croissance. Un éclairage empirique à partir d'une étude de l'effet de la taille des pays et nouvelles réflexions théoriques," Revue de l'OFCE, Presses de Sciences-Po, vol. 0(1), pages 213-248.
    10. Zhang, Zibin & Yang, Wenxin & Ye, Jianliang, 2021. "Why sulfur dioxide emissions decline significantly from coal-fired power plants in China? Evidence from the desulfurated electricity pricing premium program," Energy Policy, Elsevier, vol. 148(PB).
    11. William C. Mitchell, 1990. "Interest Groups: Economic Perspectives and Contributions," Journal of Theoretical Politics, , vol. 2(1), pages 85-108, January.
    12. Shapiro, Jesse M., 2016. "Special interests and the media: Theory and an application to climate change," Journal of Public Economics, Elsevier, vol. 144(C), pages 91-108.
    13. Altinok, Nadir & Aydemir, Abdurrahman, 2017. "Does one size fit all? The impact of cognitive skills on economic growth," Journal of Macroeconomics, Elsevier, vol. 53(C), pages 176-190.
    14. Bloom, David E. & Canning, David & Kotschy, Rainer & Prettner, Klaus & Schünemann, Johannes, 2024. "Health and economic growth: Reconciling the micro and macro evidence," World Development, Elsevier, vol. 178(C).
    15. Baarsch, Florent & Granadillos, Jessie R. & Hare, William & Knaus, Maria & Krapp, Mario & Schaeffer, Michiel & Lotze-Campen, Hermann, 2020. "The impact of climate change on incomes and convergence in Africa," World Development, Elsevier, vol. 126(C).
    16. Feng, Guohua & Gao, Jiti & Peng, Bin, 2022. "An integrated panel data approach to modelling economic growth," Journal of Econometrics, Elsevier, vol. 228(2), pages 379-397.
    17. Crescioli, Tommaso, 2024. "Reinforcing each other: How the combination of European and domestic reforms increased competition in liberalized industries," European Journal of Political Economy, Elsevier, vol. 83(C).
    18. Andreas Bergh & Christian Bjørnskov, 2021. "Does economic freedom boost growth for everyone?," Kyklos, Wiley Blackwell, vol. 74(2), pages 170-186, May.
    19. Carlos Guerrero de Lizardi, 2021. "On the Precedence of Constraints on Growth: Advocating the Ecological Footprint Perspective," Remef - Revista Mexicana de Economía y Finanzas Nueva Época REMEF (The Mexican Journal of Economics and Finance), Instituto Mexicano de Ejecutivos de Finanzas, IMEF, vol. 16(4), pages 1-25, Octubre -.
    20. Рубинштейн Александр Яковлевич, "undated". "Методологический Анализ Теории Опекаемых Благ: Научный Доклад [methodological analysis of the Theory of Patronized Goods. Research report]," Working papers a:pru175:ye:2014:1, Institute of Economics.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:poleco:v:59:y:2019:i:c:p:354-368. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/inca/505544 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.