RETAIL RESTRICTIVENESS ANALYSIS IN EASTERN EUROPE RETAIL RESTRICTIVENESS ANALYSIS IN EASTERN EUROPE | Page 21

4. IMPLICATIONS
The retail industry contributes significantly to the GDP and represents a large share of the EU employment.
The sector is also closely intertwined with product suppliers and consumers and tends to affect them
considerably. Those impacts are to a great extent confirmed by the analysis conducted under the aegis of
the European Commission 69 . The regression analysis indicated a significant impact of establishment
restrictions on the performance of retailers as well as on the end-consumers. In particular, the study
identified that in the EU there are higher establishment restrictions, the fewer new retail companies enter
and leave the market, leading to the lower market concentration. Meanwhile, the prices for end-
consumers tend to be higher.
CORRELATION BETWEEN THE LEVEL OF RESTRICTIVENESS AND PRICES FOR FOOD AND BEVERAGES
Numerous studies have found that removing establishment barriers could decrease price levels. The
research analysing the effects of the Loi Raffarin’s reform 70 in mid-nineties demonstrated that stronger
entry deterrence increases prices by more than 3% 71 (not to mention a negative impact on employment).
The analysis of the effects of the regulatory reform of 1998 in Italy (introduced maximum floor space
allowed per province) illustrated that it had a clear impact on the performance of the sector, increasing
prices and labour costs while reducing productivity and employment 72 .
The analysis conducted by experts under the aegis of the European Commission was no exception and
revealed that retail establishment restrictions may have a statistically significant adverse impact on the
price level, based on the regression between the level of restrictiveness in retail sector and price level for
food and non-alcoholic beverages 73 . However, a possible repetition of such regression for the countries
analysed in this paper was not in scope, among other reasons, due to difficulties in comparing price levels
in EU and non-EU countries since the indexes of consumer prices are non-harmonized. It is possibly a
subject of further studies.
Although an increase in prices for food has an adverse effect on the inhabitants of any country, the lower-
income countries are the most vulnerable. According to data from the National Statistics offices, the share
of the income that is spent on food and beverages are usually high in non-EU countries included in our
study. Notably in Russia, the spending on food and beverages accounts for 37% of the total expenses 74 , in
Belarus 75 it amounts for 39% and in Ukraine as high as 76 49% of spending. It is highly likely that such
countries should reconsider the level of restrictiveness in retail regulation and possibly achieve a positive
effect on the cost and price levels.
69
The EC’s document “A European retail sector fit for the 21st century“
Legislation passed in France in 1973, which limited the physical size of certain businesses, for example, it introduced a special permit for businesses > 1000 m² in towns with less than 40 000
inhabitants. It was followed by Legislation strengthening the provisions of the Loi Royer by lowering the size threshold to 300 m².
71
M. Bertrand, F. Kramarz (2004) Does entry regulation hinder job creation? Evidence from the French retail industry.
72
F. Schivardi and E. Viviano (2010) Barriers in retail trade.
73 2
R = 0.69; R 2 adjusted = 0.35
74
http://www.gks.ru/free_doc/new_site/business/it/mon-sub/1.4.4.xls
75
http://www.belstat.gov.by/ofitsialnaya-statistika/solialnaya-sfera/uroven-zhizni-naseleniya/dokhody-i-potreblenie-domashnikh-khozyaystv/godovye-dannye/potrebitelskie-raskhody-
domashnikh-khozyaystv/
76
https://www.segodnya.ua/economics/enews/na-chto-ukraincy-tratyat-dengi-1168760.html
70
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