1fVceTS

504 PAUL MYLONAS AND GEORGE PAPACONSTANTINOUfinancing), as well as exit costs relating to insolvency regulations. Reformsthat create a level-playing field, e.g. transparency, accounting standards, andcorporate governance issues, are also critical to have in place.For the main part, the link between product market reform and outputgrowth is considered to be through the same broad channels which link outputgrowth with openness in international trade. First, a greater exposure to competitionshould result in a more efficient use of resources, the greater diffusionof knowledge and exposure to best practices. Second, a situation of many competingplayers should enhance the prospects for invention and innovation, aswell as the opportunity to learn by doing (the bootstrap approach). The empiricalliterature investigating the links between product market reform and outputgrowth is small. However, it generally supports the existence of such a relationship(see Gonenc et al., 2000, for a survey of this literature).The full extent of the benefits on output can be significant. The OECDReport on Regulatory Reform contained simulations suggesting one-offincreases in GDP in the range of 5 per cent to 6 per cent for France andGermany but only 1 per cent for the United States, where market liberalisationhad started earlier (OECD, 1998). A similar exercise for Greece indicatedthe potential for a gradual one-off increase in GDP of the order of 10per cent (Mylonas and Joumard, 1999). These potential benefits should beused to offset some of the transition costs (e.g. initial job losses in the incumbentfirms – though overall employment is likely to increase subsequently).Evidence of poorly functioning and uncompetitive product markets isadmittedly difficult to obtain. However, Greece has been placed near thebottom of the list of OECD countries as far as product market performanceis concerned (Table 10-2). 2 The large output gains contained in the simulationsalso support this conclusion. It should be noted, however, that theseresults were based on developments through 1997/1998, and product marketreforms have received more attention subsequently. Another partial piece ofevidence comes from the close link between labour and product marketdevelopments.Though other factors are surely at play, lack of competition inproduct markets is likely to have been a factor behind the rise in the unemploymentrate from below 7 per cent in 1990 to 12 per cent in 1999, beforefalling to 11.4 per cent in 2000 (Figure 10-3).Currently, the Greek Government is undertaking several important andambitious initiatives to improve product market performance. This paperattempts to benchmark individual aspects of Greece’s product market reform2. The results in Table 10-2 present internationally comparable composite indicators —based on factor analysis— representing the strictness of individual country regulations.