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

Robert Anderton, Benedetta Di Lupidio and Barbara Jarmulska

Economic Modelling, 2020, vol. 91, issue C, 487-501

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.

Keywords: Regulation; Product market; Creative destruction; Total factor productivity; Growth (search for similar items in EconPapers)
JEL-codes: D21 D24 L51 O40 P23 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
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Working Paper: Product market regulation, business churning and productivity: evidence from the European Union countries (2019) Downloads
Working Paper: Product market regulation, business churning and productivity: Evidence from the European Union countries (2018) Downloads
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DOI: 10.1016/j.econmod.2020.02.039

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