from the remarkable progress Romania has made and certainly allows for a relevant comparison between Romania and other countries of the region just prior to their joining the EU. However, it does imply that Romania’s excellent performance leaves no room for complacency. Most OECD countries have actively continued to improve their product markets over the last three or four years. As such, the present paper overestimates how Romania ranks relative to competitors today.

7. The present paper provides a detailed look at the various components of product market regulation and suggests areas in which further progress could be made, at least with respect to official policies. Some steps to improve implementation are also proposed. These include (i) greater political commitment at the highest level to take the lead in application and enforcement of rules and regulations; (ii) changes in the institutional architecture of the government to improve oversight and coordination; and (iii) implementation of measures to enhance the capacity of the public administration, especially its lower echelons, to support the reform agenda.

8. We now turn to a presentation of the PMR methodology and a discussion of the choice of benchmarks, before presenting the results of the benchmarking exercise, looking first at inward oriented policies before briefly discussing outward oriented policies (which, as of January 1, 2007, are largely governed by EU rules and agreements). The last section concludes with some suggestions for next steps.

# **THE PMR METHODOLOGY**

9. A regulatory environment propitious to competition in product markets is widely believed to have positive repercussions on long run economic performance (Nicoletti and Scarpetta 2003) and productivity convergence (Conway et al. 2006a and 2007). This may occur by promoting a more efficient allocation of resources both across and within sectors (Nickel 1996). A more competitive environment may also stimulate innovation and technological diffusion, thus enhancing dynamic efficiency (Aghion et al., 2001).

10. Product market regulation (PMR) is measurable through a methodology developed at the OECD relying on the OECD Regulatory indicators questionnaire. The methodology and key findings of the PMR for OECD countries are presented in Nicoletti et al. (1999) and Conway et al. (2005). The PMR indicators summarize information on economy-wide and industry-specific regulatory provisions.

11. The PMR indicators are designed to reflect regulations that have the **potential to restrict competition** in areas where competition is viable. By construction, they have a number of features which make them useful not only for analysis, but, more importantly, for policy advice, since they allow to pinpoint specific policies that hamper competition in product markets. First, PMR indicators are focused on enacted **policies** and not on outcomes, implying that they are ‘ **objective** ’, in that they are not based on opinion surveys. Second, since the summary PMR indicator is constructed as the average of well defined components, PMR scores can be related to **specific underlying policies** , thus providing precise inputs in the phase of policy recommendation. Finally, PMR indicators 2