Wednesday, October 30, 2013

Hot Paper: Federal Regulation and Aggregate Economic Growth

The effect of Government Regulation on Economic growth.

John W. Dawson
Department of Economics
Appalachian State University
Boone, NC, 28608-2051

John J. Seater
Department of Economics
North Carolina State University
Raleigh, NC, 27695

We introduce a new time series measure of the extent of federal regulation in the U.S. and use it to
investigate the relationship between federal regulation and macroeconomic performance. We find that regulation has statistically and economically significant effects on aggregate output and the factors that produce it–total factor productivity (TFP), physical capital, and labor. Regulation has caused substantial reductions in the growth rates of both output and TFP and has had effects on the trends in capital and labor that vary over time in both sign and magnitude. Regulation also affects deviations about the trends in output and its factors of production, and the effects differ across dependent variables. Regulation changes the way output is produced by changing the mix of inputs.  Changes in regulation offer a straightforward explanation for the productivity slowdown of the 1970s. Qualitatively and quantitatively, our results agree with those obtained from cross-section and panel measures of regulation using cross-country data.

Keywords: Regulation; macroeconomic performance; economic growth; productivity slowdown


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