Product market regulation and innovation efficiency

We study the role of upstream product market regulation (PMR) on innovation efficiency. By estimating a knowledge production function for a large sample of OECD industries through a stochastic frontier analysis, we find that service regulation remarkably reduces R&D efficiency in the manufacturi...

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Bibliographic Details
Published inIDEAS Working Paper Series from RePEc
Main Authors Franco, Chiara, Pieri, Fabio, Venturini, Francesco
Format Paper
LanguageEnglish
Published St. Louis Federal Reserve Bank of St. Louis 01.01.2013
Subjects
Efficiency
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Summary:We study the role of upstream product market regulation (PMR) on innovation efficiency. By estimating a knowledge production function for a large sample of OECD industries through a stochastic frontier analysis, we find that service regulation remarkably reduces R&D efficiency in the manufacturing sector. These results are robust to controlling for the institutional setting of the technology, the labour and the financial market, as well as to various forms of heterogeneity such as, for instance, non-linearities in the effect of PMR. The marginal impact of upstream regulation is higher in less regulated economies indicating that large improvements in R&D efficiency cannot be achieved at the earlier stages of deregulation. We quantify total gains in R&D efficiency and patenting that could be obtained by late reforming countries by liberalizing the product market.