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Product Markets’ Deregulation: A more Productive, more Effcient and more Resilient Economy?

Ana Fontoura Gouveia (), Gustavo Monteiro () and Sílvia Fonte Santa ()
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Ana Fontoura Gouveia: Banco de Portugal, Nova SBE and Economics for Policy-E4P
Gustavo Monteiro: Nova SBE
Sílvia Fonte Santa: Banco de Portugal

Hacienda Pública Española / Review of Public Economics, 2019, vol. 230, issue 3, 125-155

Abstract: Relying on a rich frm-level dataset for one of the top product market reformers among OECD coun¬tries over the last decade, we fnd a positive association, already in the short-run, between frm-level productivity and deregulation of intermediate goods sectors. The long-run effects are mediated by frm-level productivity, with gains increasing with the distance to the (national) sectorial technological frontier. As laggard frms are more likely to be held-up by upstream producers with large market power, they have more to gain vis-à-vis more productive frms that are better equipped to deal with the inef¬fciencies of upstream markets. For the highly productive, the reduction of their competitive edge vis-à-vis low performers, coupled with decreased mark-ups and increased uncertainty, reduce their incen¬tives to innovate. Importantly, we fnd evidence of positive selection among laggard companies: for viable frms, the reforms unlock their growth potential and allow them to catch-up; for non-viable laggards, the likelihood of exit increases as they are not able to compete in the more demanding envi¬ronment. In fact, while the increased competition downstream (resulting from increased competition upstream) is associated with higher exit probabilities for all frms, we fnd a stronger association for low productivity frms. Finally, by comparing the performance of frms more and less exposed to pre-crisis reforms, we show that the survival of the fttest and the unlocking of viable laggards growth boosts the resilience of the frms operating in the market.

Keywords: Structural Reforms; Product Markets; Productivity (search for similar items in EconPapers)
JEL-codes: D04 D22 L43 L51 (search for similar items in EconPapers)
Date: 2019
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Handle: RePEc:hpe:journl:y:2019:v:230:i:3:p:125-155