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The impact of product market regulation on productivity through firm churning: Evidence from European countries

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  • Anderton, Robert
  • Di Lupidio, Benedetta
  • Jarmulska, Barbara

Abstract

Productivity performance in European countries has been a policy concern for several decades. This paper shows that productivity can be enhanced by product market policies which, by increasing competition and efficiency, facilitate higher rates of firms’ entry and exit (i.e. firm churning). Drawing on annual country-sector data for the period 2000–2014 across the EU countries, we find that: (i) competition-enhancing regulation is associated with a higher rate of firm churning; (ii) firm churning, in turn, appears to be positively related to higher total factor productivity at the sector level by facilitating the entry of new competitive firms and the exit of less productive ones. Overall, we conclude that stringent product market regulation can be indirectly associated, via its impact on business dynamism, with the somewhat weak productivity performance in a number of EU countries. Thus, our results point towards substantial productivity gains that could follow from the introduction of further competition-enhancing measures in product markets.

Suggested Citation

  • Anderton, Robert & Di Lupidio, Benedetta & Jarmulska, Barbara, 2020. "The impact of product market regulation on productivity through firm churning: Evidence from European countries," Economic Modelling, Elsevier, vol. 91(C), pages 487-501.
  • Handle: RePEc:eee:ecmode:v:91:y:2020:i:c:p:487-501
    DOI: 10.1016/j.econmod.2020.02.039
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    More about this item

    Keywords

    Regulation; Product market; Creative destruction; Total factor productivity; Growth;
    All these keywords.

    JEL classification:

    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
    • P23 - Economic Systems - - Socialist Systems and Transition Economies - - - Factor and Product Markets; Industry Studies; Population
    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General

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