Product markets' deregulation: a more productive, more efficient and more resilient economy?

Ana Fontoura Gouveia, Gustavo Monteiro, Silvia Fonte Santa

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Abstract

Relying on a rich firm-level dataset for one of the top product market reformers among OECD countries over the last decade, we find a positive association, already in the short-run, between firm-level productivity and deregulation of intermediate goods sectors. The long-run effects are mediated by firm-level productivity, with gains increasing with the distance to the (national) sectorial technological frontier. As laggard firms are more likely to be held-up by upstream producers with large market power, they have more to gain vis-a-vis more productive firms that are better equipped to deal with the ineffciencies of upstream markets. For the highly productive, the reduction of their competitive edge visa-vis low performers, coupled with decreased mark-ups and increased uncertainty, reduce their incentives to innovate. Importantly, we find evidence of positive selection among laggard companies: for viable firms, 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 environment. In fact, while the increased competition downstream (resulting from increased competition upstream) is associated with higher exit probabilities for all firms, we find a stronger association for low productivity firms. Finally, by comparing the performance of firms more and less exposed to pre-crisis reforms, we show that the survival of the fittest and the unlocking of viable laggards growth boosts the resilience of the firms operating in the market.
Original languageEnglish
Pages (from-to)125-155
JournalHACIENDA PUBLICA ESPANOLA-REVIEW OF PUBLIC ECONOMICS
Volume230
Issue number3
DOIs
Publication statusPublished - 2019

Keywords

  • Structural Reforms
  • Product Markets
  • Productivity

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