Abstract
In recent years, the IMF has released a growing number of reports and other documents covering economic and financial developments and trends in member countries. Each report, prepared by a staff team after discussions with government officials, is published at the option of the member country.
IV. Services Sector Performance and Product Market Regulation1
1. The relative performance of the business services sector has improved over the past ten years but productivity growth remains low.2 While growth in the business services sector was trailing that of industry and that of OECD peers in the early 2000’s, it increased during 2006-2011 in spite of the global financial crisis and overtook that of Germany’s average OECD peer (Figure 1). This favorable outcome is the result of a relatively strong employment performance following the Hartz reforms. Yet at 0.6 percent per year during 2001-2006 and 0.2 percent per year during 2006-2011, labor productivity growth in the business services sector remains modest in absolute terms.
Services Sector Performance
Citation: IMF Staff Country Reports 2014, 217; 10.5089/9781498328524.002.A004
Source: Haver Analytics, OECD, and IMF Staff calculations.1/ OECD peers: Austria, Belgium, Denmark, Finland, France, Italy, Netherlands, Norway, Sweden.2. Economy-wide product market regulation is supportive. According to the 2013 OECD Product Market Regulation indicator, Germany is amongst the least restrictive countries in terms of economy-wide product market regulation. While barriers to entrepreneurship and state control could be further reduced, barriers to trade and investment are low.
3. However there might still be scope for a fuller transposition of the EU Services Directive. More than 200 legislative acts at the Federal and Länder levels were passed in order to transpose the Directive, and thousands of legislative acts at the municipalities level were screened and adapted as needed. An example cited by the European Commission as best practice was the revocation of the obligation to register a commercial operation (Gewerbeanzeige) for service providers who are temporarily active on a cross-border basis. Yet the official evaluation of the implementation of the Directive performed in 2012 noted that more could still be done in certain areas (EC, 2012). At the time of the evaluation, specific legislation for some sectors foresaw that tacit approval of applications for authorization (i.e. silence from the administration means approval) did not apply. Furthermore, rules seemed to differ across regions: some had foreseen tacit approval in areas where other regions had not. In addition, there were doubts as to whether authorizations applied to cross-border service providers could be justified by one of the four reasons recognized by the Directive (public policy, public security, public health, and the protection of the environment) and whether these requirements were proportionate. A parallel assessment (Monteagudo et al., 2012) found that across fourteen sectors only a minority of restrictions targeted by the Directive were fully abolished.
4. Sub-sectors with negative productivity growth represent a significant share of the economy and would likely benefit from sector-specific competition-enhancing measures:
Barriers to competition are still present in railways. Vertical integration of infrastructure and operations gives incentives to the incumbent to limit its competitors’ access to the infrastructure. According to OECD (2014), the incumbent railways operator still provides three quarters of all freight transport, 87 percent of short-distance and over 99 percent of long-distance passenger transport services, and there is evidence of discrimination against competitors. The German Monopolies Commission proposed in June 2013 a liberalization plan that includes a strengthening of the regulator’s powers to collect information, regulate prices and investigate potential market abuse (Monopolies Commission, 2013a). The plan also argued for the full ownership separation between infrastructure and transport operators (accompanied by the privatization of the incumbent’s operations) although cross-country evidence on the benefits of vertical disintegration in railways appears to be mixed (Drew and Nash, 2011).
In the area of postal services, the German Monopolies Commission also called in 2013 for the dismantling of the remaining significant barriers to competition and for a more effective regulatory supervision of competition (Monopolies Commission, 2013a). The list of measures includes a sale of the remaining share (23 percent) of the incumbent operator owned by the government as well as the end of the discriminatory VAT exemptions for nation-wide provision of universal postal services.
In the area of retail trade, while regulation of promotional activities has been made less stringent over the past five years, the threshold surface limit at which regulation of large outlets applies is still restrictive in international comparison3 and existing firms still enjoy a certain degree of protection according to the 2013 OECD PMR indicators.
Professional services (architects, auditors, engineers, lawyers, notaries, tax consultants) remain highly regulated. Chamber membership (and its associated high fees) is compulsory which represents a significant entry barrier. Price competition is restricted in most areas because of the existence of legally binding prices set by the government. Exclusivity rights are currently granted in several markets. Finally, restrictions on advertisement and ownership, although relaxed in recent years, also act as a barrier to entry.
5. Targeted sectoral measures would likely result not only in lower mark-ups in the targeted sectors but also in higher growth in those sectors and/or in downstream sectors. A simple cross-country scatter plot of annual labor productivity growth in retail over a five-year period versus the initial level of regulation in retail suggests that a less stringent regulatory environment boosts productivity growth in the same sector. Furthermore, cross-country econometric evidence indicates that more competition in the services sector increases value added and productivity in service-intensive downstream industries (Barone and Cingano, 2011; Bourlès et al. 2013).
Retail Trade Regulation and Labor Productivity Growth
Citation: IMF Staff Country Reports 2014, 217; 10.5089/9781498328524.002.A004
Sources: OECD, and IMF staff calculations.References
Barone, G. and F. Cingano (2011), “Service Regulation and Growth: Evidence from OECD Countries”, Economic Journal, 121 (September), 931–957.
Bourlès, R., G. Cette, J. Lopez, J. Mairesse, and G. Nicoletti (2013), “Do Product Market Regulations in Upstream Sectors Curb Productivity Growth? Panel Data Evidence for OECD Countries”, Review of Economic and Statistics, 95(5): 1750–1768.
Drew, J. and C.A. Nash (2011), “Vertical separation of railway infrastructure - does it always make sense?” Institute for Transport Studies, University of Leeds, Working Paper 594.
European Commission (EC) (2012), “Detailed Information on the Implementation of Directive 2006/123/EC on Services on the Internal Market”, Commission Staff Working Document.
Monteagudo, J., A. Rutkowski, and D. Lorenzani (2012), “The Economic Impact of the Services Directive: A First Assessment Following Implementation”, Economic Papers 456, European Commission.
Monopolies Commission (2013a), “Bahn 2013: Reform züzig umsetzen!”, Sondergutachten 64.
Monopolies Commission (2013b), “Post 2013: Wettbewerbsschutz effektivieren!” Sondergutachten 67.
Organization for Economic Cooperation and Development (OECD) (2014), “2014 Economic Review – Germany”.
Prepared by Jérôme Vandenbussche (EUR).
Per the OECD definition, the business services sector includes wholesale and retail trade, transportation and storage, accommodation and food service activities, information and communication, financial and insurance activities, real estate, renting, as well as business activities.
Although they may hurt GDP growth, restrictions on the location of large retail outlets can be justified by urban planning and environmental reasons. In Germany, new large retail shops (above 1200 square meters) have to demonstrate that their presence has no negative effects on the traffic, the environment and urban sprawl.
