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Policies, institutions and convergence - discussion

Policies, institutions and convergence - discussion. Jorgen Elmeskov, OECD Economics Department. Three simple points. Convergence depends on structural policy settings (as well as on macro) The structural policy settings consistent with convergence keep changing

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Policies, institutions and convergence - discussion

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  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 • > 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

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