Product Market Regulation, Business Churning and Productivity: Evidence from the European Union Countries

37 Pages Posted: 2 Dec 2019

See all articles by Robert Anderton

Robert Anderton

European Central Bank (ECB)

Benedetta Di Lupidio

European Central Bank (ECB)

Barbara Jarmulska

European Central Bank (ECB)

Date Written: November, 2019

Abstract

Productivity performance in European countries has been a policy concern for some time. 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) business 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 significant productivity gains that could follow from the introduction of further competition-enhancing measures in product markets.

Keywords: creative destruction, growth, product market, regulation, total factor productivity

JEL Classification: L51, P23, D21, D24, O40

Suggested Citation

Anderton, Robert and Di Lupidio, Benedetta and Jarmulska, Barbara, Product Market Regulation, Business Churning and Productivity: Evidence from the European Union Countries (November, 2019). ECB Working Paper No. 2332, Available at SSRN: https://ssrn.com/abstract=3495463

Robert Anderton (Contact Author)

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany
0049 69 13440 (Phone)
0044 69 1344 6000 (Fax)

Benedetta Di Lupidio

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Barbara Jarmulska

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

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