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Inappropriate regulation can influence productivity performance by affecting incentives to invest and adopt new technologies, as well as by directly curbing competitive pressures. Results of a labor productivity growth model for European Union countries suggest that improving the regulatory environment-proxied by the Worldwide Governance Indicators regulatory quality indicator-and boosting effective exposure to competition through increasing trade integration-expressed as the ratio of exports plus imports to gross domestic product-have positive effects on productivity growth. In Romania a 10 percent increase in openness to global trade over 1995-2010 would have boosted productivity growth by 9.7 percent per year. A 10 percent increase in openness to European Union trade, in particular, would have led to an annual increase in productivity of 7 percent. Realizing the benefits from trade integration depends to some extent on regulation. In this regard, the effects of regulation on productivity growth are found to be positive, regardless of the indicator used to measure regulation, and both through direct and indirect channels (by increasing the speed at which a country catches up with productivity leaders). Simulation results also show how countries with different levels of regulatory quality would benefit from a regulatory improvement: had Romania improved its regulatory environment to the same level as Denmark in 2010, its annual productivity growth would have been 14 percent higher over 1995-2010.

Aggregate productivity and regulation --- Cross country output convergence --- Finance and Financial Sector Development --- Private Sector Development

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Romania's European Union accession in 2007 has resulted in a substantial reduction of the formal barriers to integration with the European Union Single Market. This study takes stock of the progress by benchmarking product market policies in Romania to those of European Union countries, as measured by the OECD indicators of Product Market Regulation. These indicators allow for a comprehensive mapping of policies affecting competition in product markets. Comparison with European Union countries reveals that, for half of the policy areas covered by the study, Romania's product market policies are more restrictive of competition than most direct comparators in the region, whereas for other indicators Romania is on a par with the European Union average or has achieved best practice. Nonetheless, these results should be interpreted in light of the fact that the Product Market Regulation approach measures officially adopted policies and does not capture implementation. Future reforms should be directed both at improving official regulation and, where policies that favor competition are already in place, toward effective enforcement.

Competition --- European Union --- Finance and Financial Sector Development --- Private Sector Development --- Product Markets --- Regulation