Policies, institutions and convergence discussion

1
Policies, institutions and convergence -
discussion

• Jorgen Elmeskov, OECD Economics Department

2
Three simple points

• Convergence depends on structural policy settings
  (as well as on macro)
• The structural policy settings consistent with
  convergence keep changing
• Hence, the ability to adapt structural policy
  settings may determine whether countries converge
• gt Need to consider political economy factors

3
Convergence depends on structural policy settings

• OECD growth study and related empirical research
  has provided evidence

4
The structural policy settings consistent with
convergence keep changing

• As countries catch up, different structural
  policies may be required
• E.g. IPR protection may be more important closer
  to the technological frontier
• As the external environment changes, structural
  policy settings may also have to change
• E.g. entry barriers as a result of product market
  regulation may be more of a drag when technology
  is in flux likewise for job protection
• Structural policies may have to change as our
  understanding of optimal policy design develops
• E.g. understanding that some segments of network
  sectors are competitive

5
The ability to adapt structural policy settings
may determine convergence

• Structural reforms tend to destroy rent and are
  therefore resisted
• Many factors affect the ability to reform. Most
  are difficult to predict long in advance as
  needed for convergence scenarios (e.g. economic
  crisis, fiscal situation, spillovers between
  reforms)
• Other factors may be more slow-moving but our
  understanding is too limited to take them into
  account in convergence scenarios (e.g. political
  institutions, integrity of institutions, factors
  underlying consensus)

6
Conclusion

• The political economy influences on convergence
  are difficult to make operational in scenarios
• But that does not prevent them from being
  important, e.g.
• full catch-up of Europe and Japan to the US was
  widely expected in the 60s but things turned out
  differently
• the imminent slowdown of the Celtic Tiger has
  been predicted for as long as anybody can remember