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Competition and Economic Growth: an Empirical Analysis for a Panel of 20 OECD Countries

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  • Scopelliti, Alessandro Diego

Abstract

This paper aims at analyzing, from an empirical point of view, the relationship between product market competition and economic growth, using the data on multi-factor productivity for a panel of 20 OECD countries over a period 1995-2005, and considering the role of the distance from the technological frontier in the growth process. Section A examines the impact of economic freedom and of the distance to frontier on the level and on the growth rate of multi-factor productivity. The analysis distinguishes between the indicators of business freedom and trade freedom, as proxies for the competitive pressures coming from domestic market and from foreign market. Then, trade liberalizations are more beneficial for the countries far from the frontier, because they can exploit the opportunities given by international trade also in order to adopt the existing technologies developed by the advanced economies. On the other hand, business liberalizations are more advantageous for the countries close to the frontier, because the elimination of regulatory barriers increases the possibility of entry in the market and then rises the potential competition to the incumbent firms. Section B studies the effect of product market regulation, employment protection legislation and of the distance to frontier on the level and on the growth rate of multi-factor productivity. Product market liberalization as well as labour market deregulation determine an increase of total factor productivity: moreover, the interaction of market rigidities with the distance to the frontier mostly displays an innovationenhancing effect, since the positive effect of market liberalizations on TFP is higher for the countries close to the frontier, where the existing technology level would reinforce the incentive for innovation.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 20127.

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Date of creation: Dec 2009
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Handle: RePEc:pra:mprapa:20127

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Keywords: multi-factor productivity; economic freedom; product market regulation; employment protection legislation; distance to frontier;

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  1. Zilibotti, Fabrizio & Aghion, Philippe & Acemoglu, Daron, 2006. "Distance to Frontier, Selection, and Economic Growth," Scholarly Articles 4554122, Harvard University Department of Economics.
  2. Blundell, Richard & Griffith, Rachel & van Reenen, John, 1999. "Market Share, Market Value and Innovation in a Panel of British Manufacturing Firms," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 66(3), pages 529-54, July.
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  7. Bruno Amable & Lilas Demmou & Ivan Ledezma, 2010. "Product market regulation, innovation, and distance to frontier," Industrial and Corporate Change, Oxford University Press, vol. 19(1), pages 117-159, February.
  8. Griffith, Rachel & Redding, Stephen J & Van Reenen, John, 2000. "Mapping The Two Faces Of R&D: Productivity Growth In A Panel Of OECD Industries," CEPR Discussion Papers 2457, C.E.P.R. Discussion Papers.
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  12. Stefan Voigt, 2006. "The Economic Effects of Competition Policy Cross Country Evidence Using Four New Indicators," ICER Working Papers, ICER - International Centre for Economic Research 20-2006, ICER - International Centre for Economic Research.
  13. John Scott, 1984. "Firm versus Industry Variability in R&D Intensity," NBER Chapters, in: R & D, Patents, and Productivity, pages 233-248 National Bureau of Economic Research, Inc.
  14. Crespo Jorge & Martín Carmela & Velázquez Francisco J, 2004. "The Role of International Technology Spillovers in the Economic Growth of the OECD Countries," Global Economy Journal, De Gruyter, De Gruyter, vol. 4(2), pages 1-20, December.
  15. Hans Pitlik, 2007. "The Impact of Growth Performance and Political Regime Type on Economic Policy Liberalization," WIFO Working Papers, WIFO 300, WIFO.
  16. Paul Conway & Véronique Janod & Giuseppe Nicoletti, 2005. "Product Market Regulation in OECD Countries: 1998 to 2003," OECD Economics Department Working Papers 419, OECD Publishing.
  17. Paul Conway & Giuseppe Nicoletti, 2006. "Product Market Regulation in the Non-Manufacturing Sectors of OECD Countries: Measurement and Highlights," OECD Economics Department Working Papers 530, OECD Publishing.
  18. Sanghoon Ahn, 2002. "Competition, Innovation and Productivity Growth: A Review of Theory and Evidence," OECD Economics Department Working Papers 317, OECD Publishing.
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