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Product Market Regulation and Productivity Convergence: OECD Evidence and Implications for Canada

  • Paul Conway
  • Giuseppe Nicoletti

In this article we investigate the effect of product market regulation on the international diffusion of productivity shocks. The results indicate that regulations that restrict competition slow the process of adjustment through which best practice production techniques diffuse across borders and new technologies are incorporated into the production process. This effect is reflected in cross-country differences in ICT investment and speeds of catch up of sectoral productivity, which are significantly influenced by differences in product market regulation. Thus, persisting cross-country differences in product market regulation can partially explain the recent observed divergence of labour productivity in OECD countries, given the emergence of new general purpose technologies over the 1990s. In the case of Canada, the results suggest that remaining regulatory barriers to competition in a few key non-manufacturing sectors may have prevented the economy from benefiting to the full extent from high productivity growth rates in the United States and other productivity leaders.

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Article provided by Centre for the Study of Living Standards in its journal International Productivity Monitor.

Volume (Year): 15 (2007)
Issue (Month): (Fall)
Pages: 3-24

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Handle: RePEc:sls:ipmsls:v:15:y:2007:1
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  1. Nicoletti, Giuseppe & Scarpetta, Stefano, 2003. "Regulation, productivity, and growth : OECD evidence," Policy Research Working Paper Series 2944, The World Bank.
  2. Rachel Griffith & Rupert Harrison & Helen Simpson, 2010. "Product Market Reform and Innovation in the EU," Scandinavian Journal of Economics, Wiley Blackwell, vol. 112(2), pages 389-415, 06.
  3. Christopher Gust & Jaime Marquez, 2002. "International comparisons of productivity growth: the role of information technology and regulatory practices," International Finance Discussion Papers 727, Board of Governors of the Federal Reserve System (U.S.).
  4. Dominique Guellec & Bruno van Pottelsberghe de la Potterie, 2001. "R&D and Productivity Growth: Panel Data Analysis of 16 OECD Countries," OECD Science, Technology and Industry Working Papers 2001/3, OECD Publishing.
  5. Wolfgang Keller, 2001. "International Technology Diffusion," NBER Working Papers 8573, National Bureau of Economic Research, Inc.
  6. Alesina, Alberto F & Ardagna, Silvia & Nicoletti, Giorgio & Schiantarelli, Fabio, 2003. "Regulation and Investment," CEPR Discussion Papers 3851, C.E.P.R. Discussion Papers.
  7. Paul Conway & Donato de Rosa & Giuseppe Nicoletti & Faye Steiner, 2006. "Regulation, Competition and Productivity Convergence," OECD Economics Department Working Papers 509, OECD Publishing.
  8. Maria Maher & Jay Shaffer, 2005. "Product Market Competition and Economic Performance in Canada," OECD Economics Department Working Papers 421, OECD Publishing.
  9. Rachel Griffith & Stephen Redding & John Van Reenen, 2000. "Mapping the two faces of R&D: productivity growth in a panel of OECD industries," IFS Working Papers W00/02, Institute for Fiscal Studies.
  10. Jean-Philippe Cotis, 2006. "Benchmarking Canada's Economic Performance," International Productivity Monitor, Centre for the Study of Living Standards, vol. 13, pages 3-20, Fall.
  11. Baldwin, John R. & Wong, Fanny & Maynard, Jean-Pierre, 2005. "The Output Gap Between Canada and the United States: The Role of Productivity (1994-2002)," Insights on the Canadian Economy 2005009e, Statistics Canada, Economic Analysis.
  12. Nicholas Crafts, 2006. "Regulation and Productivity Performance," Oxford Review of Economic Policy, Oxford University Press, vol. 22(2), pages 186-202, Summer.
  13. Nickell, Stephen & Nicolitsas, Daphne & Dryden, Neil, 1997. "What makes firms perform well?," European Economic Review, Elsevier, vol. 41(3-5), pages 783-796, April.
  14. Daron Acemoglu & Philippe Aghion & Fabrizio Zilibotti, 2002. "Distance to Frontier, Selection, and Economic Growth," NBER Working Papers 9066, National Bureau of Economic Research, Inc.
  15. 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.
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