The direct and indirect effects of product market regulations in the retail trade sector : theoretical aspects and an exploratory data analysis

The reduction of regulatory restrictions is arguably the most strongly advocated policy for improving economic performance in EU countries, particularly in many service activities, where regulatory barriers to competition are still widespread. This technical report considers the direct and indirect effects of product market regulations (PMR) applying to the retail trade sectors in the EU countries. Retail and wholesale trade are one of the largest service sectors in the EU. The functioning of the retail market affects the whole economy, because of its size and also because of its linkages with other sectors of the economy. It is also important for consumers, who spend 30% of their consumption expenditures in retail shops. This technical report is divided into two parts. The first part provides a review of the theoretical literature on the relationships between anti-competitive PMR and economic performance in the directly affected sector as well as in upstream and downstream linked sectors. We also discuss special features of the retail trade, which are relevant to understand the indirect impacts of this sector's PMR on upstream manufacturing sectors. The second part of the report provides an exploratory data analysis of the development of retail trade PMR as well of their direct and indirect effects on economic performance. Direct effects on economic performance comprise the impact on the market structure, labour productivity and ICT investment in the retail trade sectors of the EU countries. Since food items represent - with 40% to 60% ‒ the largest part of retail turnover, the analysis of the indirect effects focuses on the impact on consumer prices for food, food demand of private households and employment in the food sector. We find evidence for negative direct and indirect effects of retail trade regulations in the investigated areas. However, further research is needed to check the robustness of the findings and to employ more elaborated statistical analyses for the 28 EU countries. This will only be feasible if more internationally comparable data on retail trade PMR will become available.