📈 economics

Do Market Rules Shape Quality of Life? A Capability-Based Test with Two Waves of OECD Product Market Regulation

This paper applies the capability approach to test whether specific components of product market regulation differentially impact gender inequality and life evaluations across 54 economies, finding that while reduced entry barriers correlate with higher life satisfaction, they show no significant association with gender inequality and fail to support the hypothesis that regulatory composition matters more than overall regulatory levels.

Original authors: Rodrigo Laera

Published 2026-10-23

📖 5 min read🧠 Deep dive

CC BY 4.0

Original authors: Rodrigo Laera

Original paper licensed under CC BY 4.0 (https://creativecommons.org/licenses/by/4.0/). ✨ This is an AI-generated explanation of the paper below. It is not written or endorsed by the authors. For technical accuracy, refer to the original paper. Read full disclaimer

Imagine a society as a vast machine designed to turn the raw materials of life—education, health, money, and time—into real opportunities for its citizens. For decades, experts have debated how to make this machine work better for everyone, particularly for women who often face extra hurdles in the workplace. A specific school of thought, known as the capability approach, suggests that the true measure of a society's success is not just how rich it is, but how much freedom its people actually have to live the lives they value. This perspective argues that rules and regulations are not just bureaucratic hurdles; they are the gears and levers that determine whether a person can turn a formal right, like the legal permission to start a business, into a real, functioning opportunity. If the rules are too heavy or complicated, they act as a filter, blocking those with fewer resources from moving forward.

This raises a critical question for policymakers: does the specific type of rule matter more than the general amount of regulation? For instance, do rules that make it hard for new companies to enter a market hurt women more than rules that dictate how much the government itself participates in the economy? To find out, a researcher set out to test this idea using data from fifty-four different economies, ranging from wealthy nations to developing ones. The study examined two distinct waves of data, comparing how things looked in 2018 and again in 2023–24, to see if changes in these rules led to changes in how equal men and women were, or how satisfied people felt with their lives.

The investigation focused on two main types of market rules. The first type involves barriers to entry, which are the administrative steps, licenses, and fees a new business must navigate to get started. The second type involves state involvement, which covers how much the government owns companies or interferes in how businesses operate. The researcher hypothesized that the entry barriers would be the bigger problem for gender inequality. The logic was that these barriers act as a heavy tax on time and money, and since women often have less of both due to unpaid care work and lower wages, they would be the ones most likely to be stopped from entering the market. If this were true, then loosening these specific entry rules should lead to a noticeable drop in gender inequality and a rise in life satisfaction.

The results, however, told a different story. When the researcher looked at the data across all the countries at a single point in time, the expected link did not appear. Loosening the rules for new businesses was not strongly connected to lower gender inequality once the overall level of human development in a country was taken into account. Furthermore, the data showed that the two types of rules—entry barriers and state involvement—did not carry different weights. They seemed to affect gender inequality in much the same way, or perhaps not at all in a measurable way. The idea that one specific part of the regulatory machine was the primary cause of gender gaps was not supported by the evidence.

The study also looked at how things changed over time. Between 2018 and 2023, many countries reduced their entry barriers, making it easier to start a business. The researcher expected to see a corresponding drop in gender inequality or a rise in the number of women working. Instead, the data showed no clear connection between these reforms and changes in gender inequality or women's participation in the workforce. There was one small signal: countries that reduced entry barriers did see a slight increase in how satisfied their citizens felt with their lives. However, this link was fragile. When the researcher accounted for the fact that countries starting with lower life satisfaction tended to improve faster regardless of their rules, the connection weakened and lost its statistical significance. It appeared that the improvement in life satisfaction was part of a broader trend of countries catching up, rather than a direct result of changing specific market rules.

In the end, the study concludes that while the theory behind the capability approach remains powerful, the specific claim that the composition of market regulation drives gender inequality is not supported by the available national data. The rules that govern how a business enters a market do not seem to be the main lever for fixing gender gaps in the way the theory predicted. This does not mean that regulations are unimportant, but it suggests that looking at broad national statistics might be too coarse to see the specific effects on individuals. The researcher notes that the data used here measures the rules on paper, not the actual experience of a woman trying to start a business. The true impact of these rules might be happening on a smaller, more personal scale that national averages cannot capture. For now, the evidence suggests that simply changing the entry rules is not a silver bullet for gender equality, and that the path to a better quality of life for all may require looking deeper into the specific ways people navigate the world, rather than just the rules they face.

Technical Summary: Market Rules and Quality of Life

Problem and Theoretical Framework
This research investigates whether the specific composition of product market regulation (PMR)—distinct from its aggregate level—matters for distribution-sensitive quality-of-life outcomes, particularly gender inequality. Grounded in the capability approach (Sen, 1999; Nussbaum, 2000), the study posits that institutions function as "social conversion factors" that determine how individuals convert resources into real opportunities (capabilities). The central hypothesis is that regulatory barriers to entry (e.g., administrative burdens, licensing) impose conversion costs that disproportionately affect resource-constrained groups, such as women, thereby widening gender gaps. Conversely, aggregate PMR measures typically assume that different regulatory components (entry barriers vs. state involvement) carry equal weight in their impact on well-being. The paper challenges this assumption, asking if the type of regulation matters more than the level of regulation for outcomes like the Gender Inequality Index (GII) and life evaluations.

Methodology
The study employs a mixed-methods quantitative design utilizing two waves of OECD economy-wide PMR indicators (2018 and 2023–24) that share a consistent methodology, allowing for direct cross-sectional and within-country comparisons.

Sample: 54 economies (38 OECD members), with 50 observed in both waves.
Key Variables:
- Independent Variables: The author decomposes the aggregate PMR indicator into two components: Barriers to Domestic and Foreign Entry (BDFE) and State Involvement (SI). They construct a Regulatory Capability Index (RCI) ( $RCI = 6 - BDFE$ ) to measure entry rules conducive to capabilities.
- Outcomes: The primary outcome is the UNDP's Gender Inequality Index (GII). Secondary outcomes include the female-to-male labor force participation ratio, national life evaluations (Cantril ladder), and the gender gap in life satisfaction.
- Controls: Human Development Index (HDI), log GDP per capita, legal gender equality (World Bank's Women, Business and the Law index), and regional fixed effects.
Analytical Strategy:
1. Cross-Sectional Analysis: OLS regressions with HC3 heteroscedasticity-consistent standard errors testing whether the entry component (RCI) has a stronger association with gender inequality than state involvement (SI), conditional on development.
2. Within-Country Analysis: First-difference models (2018–2023) to assess whether changes in entry barriers correlate with changes in outcomes, controlling for initial levels to account for convergence.
3. Robustness: The author applies Holm corrections for multiple testing, equivalence tests, non-nested model comparisons (Davidson–MacKinnon J tests, Vuong tests), and extensive sensitivity analyses (specification curves, leave-one-out, Oster bounds for unobserved selection).

Key Contributions

Theoretical Integration: The paper operationalizes the capability approach by treating PMR as a social conversion factor, explicitly linking regulatory friction to the "combined capabilities" required for economic agency.
Methodological Innovation: By leveraging the OECD's 2018 and 2023–24 waves (which share methodology), the study provides a rare direct test of whether the aggregate PMR indicator's assumption of equal weighting between entry barriers and state involvement holds empirically.
Empirical Rigor: The study reports a comprehensive set of null results with pre-specified tests and multiplicity adjustments, contributing to the literature by identifying plausible institutional channels that do not show up in aggregate data.

Results
The empirical findings are largely null, offering little support for the hypothesis that the composition of regulation drives distribution-sensitive outcomes differently than the aggregate level.

Composition vs. Aggregate Level: Cross-sectionally, less restrictive entry rules (higher RCI) show a weak, statistically insignificant association with lower gender inequality once human development is controlled ( $b = -0.051, p = .109$ ). The hypothesis that entry barriers and state involvement carry equal weight (as the aggregate PMR assumes) is not rejected ( $p = .343$ ). The data are uninformative regarding the relative weight of the two components rather than proving they are equal.
Within-Country Change: Changes in entry barriers between 2018 and 2023 are unrelated to changes in gender inequality or women's relative labor force participation.
Life Evaluation: A reduction in entry barriers coincides with gains in national life evaluation ( $b = 0.54, p = .018$ ). However, this association is fragile: it disappears ( $p = .163$ ) once the initial level of life evaluation is controlled for, consistent with a convergence pattern among middle-income economies where lower-scoring countries improve faster.
Robustness: The relationship between entry barriers and gender inequality is consistent in sign but too weak to be distinguished from zero once development controls are included. The association vanishes in specification curves and is sensitive to the inclusion of development controls.

Significance and Claims
The paper claims that while the capability approach provides a compelling normative framework for evaluating institutions, its specific claims regarding market regulation composition lack empirical support at the level of national aggregate indicators.

Implications for Theory: The results suggest that the normative case for attending to "conversion friction" in regulation should not rest on cross-national associations with aggregate outcomes. Instead, the author argues that evidence must be grounded in micro-level data showing how specific procedures affect specific groups.
Implications for Policy: The findings caution against policy claims that deregulating market entry will automatically narrow gender gaps. While such claims appear in frameworks like the OECD Recommendation on Gender Equality, this study finds that national PMR indicators do not provide evidence for them. The author suggests that tools measuring implementation and gendered outcomes directly (e.g., World Bank's Business Ready assessments) are better suited for testing these mechanisms.
Nature of Findings: The author explicitly frames their results as an "absence of evidence" rather than "evidence of absence," noting that the sample size and coarse nature of national indicators may mask moderate effects. They conclude that the capability approach remains valid but requires testing with data closer to the individuals whose conversion costs are at stake.

Technical Summary: Market Rules and Quality of Life

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