**Figure 2: The integrated PMR indicator system**

|State con<br>(0.33|trol<br>)|Product market regulati<br>Barriers to entrepreneurs<br>(0.33)|on<br>hip|Barriers to t<br>investment|rade and<br>(0.33)|
|---|---|---|---|---|---|
|Public<br>ownership<br>(0.50)|Involvement<br>in business<br>operations<br>(0.50)|Regulatory and<br>administrative<br>opacity<br>(0.33)<br>Administrative<br>burdens on<br>start-ups<br>(0.33)|Barriers to<br>competition<br>(0.33)|Explicit barriers<br>to trade and<br>investment<br>(0.50)|Other<br>barriers<br>(0.50)|
|Scope of public<br>enterprise<br>(0.33)<br>Gov’t involvement<br>in network sectors<br>(0.33)|Price<br>controls<br>(0.50)<br>Use of<br>command<br>and control|Licenses and<br>permits system<br>(0.50)<br>Communication<br>and<br>simlification<br>Admin. burdens<br>for corporations<br>(0.33)<br>Admin. burdens<br>for sole<br>proprietor firms<br>(0.33)|Legal barriers<br>(0.25)<br>Antitrust<br>exemptions<br>(0.25)<br>Barriers in<br>network sectors|Barriers to FDI<br>(0.33)<br>Tariffs<br>(0.33)|Regulatory<br>barriers<br>(1.0)|
|Direct control<br>over business<br>enterprises<br>(0.33)|regulation<br>(0.50)|Integration of sectoral information (NM<br>p<br>of rules and<br>procedures<br>(0.50)<br>Sector-specific<br>administrative<br>burdens<br>(0.33)|R+FDI-Index)<br> <br>(0.25)<br>Barriers in<br>services<br>(0.25)|Discriminatory<br>procedures<br>(0.33)||

<!-- Start of picture text --> Gov’t involvement<br>in network sectors<br>(0.33)<br><!-- End of picture text --> <!-- Start of picture text --> Regulatory<br>barriers<br>(1.0)<br><!-- End of picture text --> <!-- Start of picture text --> Integration of sectoral information (NMR+FDI-Index)<br><!-- End of picture text --> Source: OECD 2008 The structure of the PMR system is shown in Figure 2. The system is composed of 18 basic or ‘low-level’ indicators, each capturing a specific aspect of the regulatory regime as described in Box 1. The indicators are calculated on the basis of the qualitative and quantitative information obtained from questionnaire answers. Qualitative data are assigned a numerical value that allows ordering each of the possible responses to a given question. Quantitative information is ranked by subdividing it into categories based on a system of thresholds. The coded information is then normalized over a scale of zero to six. These data are then aggregated into basic or ‘low-level’ indicators by assigning subjective weights to the various regulatory requirements. Given the normalization of the basic data, all the low-level indicators also have a scale of zero to six, reflecting increasing restrictiveness of regulatory areas. A detailed description of the low level indicators is presented in Annex III.

Basic indicators are then aggregated into broader regulatory domains. Higher level indicators are calculated as weighted averages of their constituent lower level indicators. The attribution of lower-level indicators to each higher-level indicator, and the weights used in the aggregation, are based on principal component analysis (Nicoletti et al., 1999). At the highest level of aggregation the overall indicator of product market regulation summarizes the restrictiveness of the regulatory framework in the product market. The structure of the PMR system, with progressive levels of aggregation, has the advantage of allowing a decomposition of higher-level indicators, with an increasing degree of detail, into the values of the more disaggregated indicators, each corresponding to specific regulatory provision.

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