Dynamic market selection in EU business services

Henk Kox and George Leeuwen

MPRA Paper from University Library of Munich, Germany

Abstract: European business services has witnessed about two decades of virtual productivity stagnation. The paper investigates whether this is caused by weak dynamic market selection. The time pattern of scale-related inefficiencies is used as an indicator for the effectiveness of market selection. We use a DEA method to construct the productivity frontier by sub-sector and size class, for business services in 13 EU countries. From this we derive scale economies and their development over time. Between 1999 and 2005 we observe a persistence of scale inefficiencies and X-inefficiencies , with scale efficiency falling rather than growing over time. This indicates malfunctioning competitive selection. The time pattern of inefficiencies is significantly explained by regulatory policies that hamper entry and exit dynamics and labour adjustment, and by a lack of import penetration. The results suggest that policy reform and more market openness will have positive productivity effects. This holds for business services itself, but also wider, because of business services’ products are widely used as intermediary inputs in other parts of the European economy.

Keywords: competition; scale economies; market contestability; regulation; EU; productivity (search for similar items in EconPapers)
JEL-codes: D24 L11 L8 (search for similar items in EconPapers)
Date: 2012-09
New Economics Papers: this item is included in nep-eff and nep-eur
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Related works:
Working Paper: Dynamic market selection in EU business services (2012)
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:41016

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