Does Anti-Competitive Regulation Matter forProductivity? Evidence from European Firms

Using firm-level data for a sample of European countries, we focus on the effects thatproduct-market regulations have on firm-level TFP growth. We proxy regulatory burdensusing the OECD indicators of sectoral non-manufacturing regulations. These allowaccounting for both the direct effects of sectoral regulation on within-sector performance andthe indirect effects of sectoral regulation on firms in other sectors through intersectoral inputoutputlinkages. Our econometric specification of TFP is based on a “neo-Schumpeterian”empirical specification in which productivity improvements depend on growth at the globaltechnological frontier and a catch up term. We assume that regulation can affect productivitygrowth both directly and by slowing down the rate of catch up. We find that product marketregulations that curb competitive pressures tend to reduce the productivity performance offirms. The negative effect is particularly strong on firms characterised by an above-averageproductivity growth. Domestic regulations that affect all regulated firms in the same way seemto be more important than border regulations in this context....