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Product market regulation and innovation efficiency

  • Chiara Franco


    (Department of International Economics, Institutions and Development, Catholic University of the Sacred Heart of Milan)

  • Fabio Pieri

    (Departamento de Estructura Economica (Economia Aplicada II), Universitat de Valencia)

  • Francesco Venturini


    (Department of Economics, Finance and Statistics, University of Perugia)

We study the role of upstream product market regulation (PMR) on innovation efficiency. By estimating a knowledge production function for a large sample of OECD industries through a stochastic frontier analysis, we find that service regulation remarkably reduces R&D efficiency in the manufacturing sector. These results are robust to controlling for the institutional setting of the technology, the labour and the financial market, as well as to various forms of heterogeneity such as, for instance, non-linearities in the effect of PMR. The marginal impact of upstream regulation is higher in less regulated economies indicating that large improvements in R&D efficiency cannot be achieved at the earlier stages of deregulation. We quantify total gains in R&D efficiency and patenting that could be obtained by late reforming countries by liberalizing the product market.

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Paper provided by Department of Applied Economics II, Universidad de Valencia in its series Working Papers with number 1313.

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Length: 37 pages
Date of creation: May 2013
Date of revision:
Handle: RePEc:eec:wpaper:1313
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