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Working papers from the Economics Department of the OECD that cover the full range of the Department’s work including the economic situation, policy analysis and projections; fiscal policy, public expenditure and taxation; and structural issues including ageing, growth and productivity, migration, environment, human capital, housing, trade and investment, labour markets, regulatory reform, competition, health, and other issues.
The views expressed in these papers are those of the author(s) and do not necessarily reflect those of the OECD or of the governments of its member countries.
The short-term impact of product market reforms
A cross-country firm-level analysis
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- Peter Gal1, Alexander Hijzen2
- Author Affiliations
- 1: VU University Amsterdam, Netherlands
- 2: OECD, France
- 26 July 2016
- Bibliographic information
This paper analyses the effects of product market reforms in the short and medium term across 10 regulated industries and 18 advanced economies for the period 1998-2013 using internationally comparable firm-level data based on Orbis. It provides four key insights. First, product market reforms have positive effects on capital, output and employment and their effects increase over time. After two years, they raise capital by 4%, output by 3% and employment by 1.5%. Second, differences in production technology and the nature of product market regulations across sectors generate important differences in the mechanisms through which reforms operate. In network industries, reforms tend to benefit small firms, while the opposite is observed in retail trade. Product market reforms also promote firm entry, particularly those that reduce entry barriers. Third, credit constraints can play an important role in weakening the positive impact of product market reform on investment. Fourth, product market reforms also tend to have positive effects on firms in downstream sectors—both at home and abroad—that make intensive use of intermediate inputs from deregulated sectors.
- structural reforms, credit constraints, Orbis, competition, firm entry
- JEL Classification:
- D04: Microeconomics / General / Microeconomic Policy: Formulation, Implementation, and Evaluation
- D22: Microeconomics / Production and Organizations / Firm Behavior: Empirical Analysis
- L43: Industrial Organization / Antitrust Issues and Policies / Legal Monopolies and Regulation or Deregulation
- L51: Industrial Organization / Regulation and Industrial Policy / Economics of Regulation
- L8: Industrial Organization / Industry Studies: Services
- L9: Industrial Organization / Industry Studies: Transportation and Utilities