The impact of product market regulation on productivity through firm churning: Evidence from European countries |
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| Institution: | 1. European Central Bank, Germany;2. University of Nottingham, United Kingdom;3. GREDEG, University of Nice Sophia Antipolis, France;4. European Insurance and Occupational Pensions Authority, Germany;1. Department of Management, Università Politecnica delle Marche, Ancona, Italy;2. Department of Economics and Social Science, Università Politecnica delle Marche, Ancona, Italy;1. Department of Financial Engineering, Ajou University, Suwon, 16499, Republic of Korea;2. Department of Applied Mathematics & Institute of Natural Science, Kyung Hee University, Yongin, 17104, Republic of Korea;3. Department of Mathematical Sciences, Seoul National University, Seoul, 08826, Republic of Korea;1. Texas A&M University, Department of Finance, Mays Business School, College Station, TX, 77843, USA;2. University of Valladolid (Spain), NRU Higher School of Economics (Russia), School of Business and Economics, Avda. Valle Del Esgueva 6, 47011, Valladolid, Spain;3. University of Valladolid, School of Business and Economics, Avda. Valle Del Esgueva 6, 47011, Valladolid, Spain;1. University of South Australia, Australia;2. Faculty of Business and Economics, University of Melbourne, Australia;3. University of Mazandaran, Iran;4. Shahid Beheshti University, Iran;1. CREM UMR 6211, Université de Caen Normandie, France;2. ICN Business School-CEREFIGE, Nancy, France |
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| 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. |
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| Keywords: | Regulation Product market Creative destruction Total factor productivity Growth L51 P23 D21 D24 O40 |
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