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Given similar democratic constitutions and basic constitutional rights such as property rights, freedom of speech, freedom of press etc and the definition of regulation according to OECD:

Regulation is broadly defined as imposition of rules by government, backed by the use of penalties that are intended specifically to modify the economic behaviour of individuals and firms in the private sector.

Is there a relationsship between regulation of economic activity and economic growth? Are there any reviews / meta analysis?

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  • $\begingroup$ even after edit this is quite broad, and would still benefit from further clarification. 1. What do you consider to be regulation? Regulation is not well defined in the literature. For example, OECD defines it as "Regulation is broadly defined as imposition of rules by government, backed by the use of penalties that are intended specifically to modify the economic behaviour of individuals and firms in the private sector" which would arguably include property rights or enforcement of contracts. But then some authors prefer to confine term regulation just to $\endgroup$ – 1muflon1 Apr 13 at 12:09
  • $\begingroup$ "governmental actions to control price, sale and production decisions of firms in an avowed effort to prevent private decision-making" such as Breyer et al (2016), also what do you mean by heavy regulation? That is not really word used throughout literature so I am not even sure how you want to measure it? Is country with strong property rights more heavily regulated than one with weak ones? Or is a country with property rights vs country with no property rights more 'heavily' regulated? $\endgroup$ – 1muflon1 Apr 13 at 12:10
  • $\begingroup$ Thanks for your input. I tried to narrow it down. Please let me know if it is answerable in this form.. $\endgroup$ – Rubus Apr 13 at 12:15
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    $\begingroup$ Well this does not really help, especially since 1. you still do not define what you mean by regulation whether the broad or narrow sense. 2. what do you consider heavy regulation... I think it would be best if you would first do some basic background research on regulation online and then try to reformulate your question based on that $\endgroup$ – 1muflon1 Apr 13 at 12:21
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Broadly speaking regulation can be defined as done by OECD see Khemani and Shapiro (1993):

Regulation is broadly defined as imposition of rules by government, backed by the use of penalties that are intended specifically to modify the economic behaviour of individuals and firms in the private sector.

This is broad definition that includes anything from price controls via regulations on export/imports to antitrust laws.

Research shows that inclusive institutions which include things that would very well fall under the label regulation like antitrust laws, laws that enforce competition, prevent firms from creating barriers to entry and so forth do promote economic growth (see Acemoglu 2008, Acemoglu & Robinson 2000a, 2000b, 2001, 2006, 2008; Olson 1984, Bates 1981, 1983, 1989 and sources cited therein*).

On the other hand extractive institutions, such as government grants of monopolies, restrictions on who or what classes of people can participate in labor market (e.g. like many apartheid regulations that restricted blacks form some professions) many of which again would fall under the label of regulation, tend to depress growth (see the same sources as above).

So growth is neither retarded or supported by 'heavy regulation' per se, it all depends what sort of regulation we are talking about. Regulation that fixes market failures, promotes openness and competition generally supports growth whereas regulation that creates market failures, closes economy and favors concentration generally retards growth.

An important caveat is that under a more narrow definitions of regulation such as the definition used by Breyer et al (2016):

governmental actions to control price, sale and production decisions of firms in an avowed effort to prevent private decision-making

which is more narrow the answer might change as literature is less kind to price controls and command and control regulations, but still the answer would depend on what sort of regulation are we talking about.

In literature, the focus is not really on how 'heavy' regulation is, but on regulation quality. For example, Jalilian et al (2007) show that developing countries with higher regulatory quality grow faster, where regulatory quality is defined as "burden on business via quantitative regulations, price controls, and other interventions in the economy" (where more burden means lower quality - but burden is not the same as having many regulations as one can implement large quantity of well designed regulations that jointly might have smaller burden than few very badly designed regulations).


* Note this research is also summarised in Acemoglu & Robinson: Why Nations Fail? which is book that is written in a way that is more accessible to laymen readers than the papers mentioned above).

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  • $\begingroup$ Amazing answer so far..Could you elaborate a bit more on possible regulations that would fall under the narrow definition of regulation by Breyer et al.? $\endgroup$ – Rubus Apr 13 at 12:57
  • $\begingroup$ @Rubus things like price controls for example let’s say loaf of bread cannot cost more than 5 euro, or quantity controls business cannot produce more than 100 ton of bread or that firms must produce something eg every newly build house has to have a large garden or it cannot be produced $\endgroup$ – 1muflon1 Apr 13 at 12:59
  • $\begingroup$ Just based on the quote (I did not read their paper), I get a suspicion that Breyer et al would count all regulations (according to the common sense definition) as meeting their definition too. i.e. no matter what the government does, the government would be "making an avowed effort to prevent private decision-making" and should therefore be abolished. But maybe I hang around ideologues too much. $\endgroup$ – user253751 Apr 13 at 13:26
  • $\begingroup$ @Rubus I cant play the video as it says it is restricted however, I do not think it is fair to say that anti trust laws in general are controversial - you can read any econ 101 textbook on that. This being said, I am sure that many real world examples of anti trust laws will be controversial since just because few politicians slap anti-trust label on a law that does not necessary mean the law actually helps to improve competition or that it is well designed regulation. That is whole separate issue. $\endgroup$ – 1muflon1 Apr 13 at 14:34
  • $\begingroup$ youtube.com/watch?v=iEyHgedyAAM Very strange..I do not doubt that Anti Trust laws work theoretically, but watch the video about how its implementation in the US leads to great injustice.. $\endgroup$ – Rubus Apr 13 at 14:40

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