The Impact of Regulation on Economic Growth in Developing Countries: a Cross-Country Analysis

11296 Words46 Pages
THE IMPACT OF REGULATION ON ECONOMIC GROWTH IN DEVELOPING COUNTRIES: A CROSS-COUNTRY ANALYSIS

1

ABSTRACT

The role of an effective regulatory regime in promoting economic growth and development has generated considerable interest among researchers and practitioners in recent years. In particular, building effective regulatory structures in developing countries is not simply an issue of the technical design of the most appropriate regulatory instruments, it is also concerned with the quality of supporting regulatory institutions and capacity. This paper explores the role of state regulation using an econometric model of the impact of regulation on growth. The results based on two different techniques of estimation suggest a
…show more content…
The rest of the paper is organised as follows. Section 2 reviews issues in the literature pertinent to the debate on the role of regulation in economic growth, before turning to regulatory measures and proxies for the quality of regulation. In section 3 the models used are presented. Section 4 deals with a descriptive analysis of the data and reports the

regression results. The results confirm that the quality of state regulation impacts positively on economic growth. development policy. Finally, section 5 provides conclusions and the implications for

5

2.

LITERATURE REVIEW (a) Regulation Theory

The theory of economic regulation developed from the nineteenth century and the literature is now vast (for recent reviews, see Laffont and Tirole, 1993, 2000; Levy and Spiller, 1994; Newbery, 1999). The case for economic regulation is premised on the existence of

significant market failure resulting from economies of scale and scope in production, from information imperfections in market transactions, from the existence of incomplete markets and externalities, and from resulting income and wealth distribution effects. It has been suggested that market failures may be more pronounced, and therefore the case for public regulation is stronger, in developing countries (Stiglitz 1998). More recent theoretical contributions to the regulation literature have provided a model of regulation for network industries that recognises the
Get Access