Product market regulation and productivity convergence

Paul Conway, Giuseppe Nicoletti, Donato de Rosa, Faye Steiner
2007 OECD Economic Studies  
In this article we investigate the effect of product market regulation on the international diffusion of productivity shocks. The results indicate that regulations that restrict competition slow the process of adjustment through which best practice production techniques diffuse across borders and new technologies are incorporated into the production process. This effect is reflected in cross-country differences in ICT investment and speeds of catch up of sectoral productivity, which are
more » ... antly influenced by differences in product market regulation. Thus, persisting cross-country differences in product market regulation can partially explain the recent observed divergence of labour productivity in OECD countries, given the emergence of new general purpose technologies over the 1990s. In the case of Canada, the results suggest that remaining regulatory barriers to competition in a few key non-manufacturing sectors may have prevented the economy from benefiting to the full extent from high productivity growth rates in the United States and other productivity leaders. ONE OF THE ECONOMIC PARADOXES of the past decade was that GDP per capita diverged across OECD countries even as policies con-
doi:10.1787/eco_studies-v2006-art9-en fatcat:zehapaoacrbeplp4mr76fleyau