CHAPTER 4
This distinction has policy implications. Government policies and regulations, and the institutions that enforce them, affect firm performance by influencing the enterprise’s cost structure. If firm performance differs across countries, measuring the effect of policies on performance would be illuminating. The impact of regulations on firm performance could be viewed as the “static” impact of regulations. Government policies might also affect market dynamics by influencing firms’ entry and exit decisions and growth patterns. The type of firms that survive and succeed in different environments depends on the policies in different countries. If the mix of enterprises operating in each country differs, the link between market structure and the regulatory framework must be understood. The impact of regulations on enterprise growth—the “dynamic” impact of regulations—is as important in explaining how firms produce jobs, value added, and exports. Both firm- and country-specific elements affect performance, but their relative importance differs in ways relevant to policy reforms.
How have enterprises done? Quite well Over the past two decades, the competitive landscape for European enterprises has changed. The globalization of markets and enlargement of the European Union have altered the way European firms do business. European firms have generally coped well with these changes: during 1995–2009, they managed to deliver against the three objectives set out above and remained globally competitive (figure 4.1 and table 4.1).7 A comparison of the performance of European subregions shows the following: · In 1995, enterprises in Europe employed a larger share of the working-age population than in the rest of the world, but lower than other most advanced economies. Since then, Europe has produced jobs faster than the United States but more slowly than the rest of the world. In fact, emerging market countries, notably China, saw a massive reallocation of labor from agriculture to industry, which Europe experienced soon after World War II. · Value added per worker has increased in much of Europe. While European productivity8 grew in line with its competitors (but from a higher base), Europe did not close the productivity gap with the United States. However, the EU15 grew at a rate comparable with Japan, the United States, Canada, Australia, and New Zealand taken together, while many European countries performed as well as the United States. · European enterprises have maintained a favorable position in global trade. In 1995, Europe exported goods and services worth more than 40 percent of its GDP, a much higher share than the Organisation for Economic Co-operation and Development (OECD) average. Since then, Europe has increased exports in value terms, although less quickly than emerging countries. Average trends mask differences in performance among countries and firms in Europe. Disparities are evident not only between advanced and emerging Europe, but also between countries in each group.
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