Regulation and productivity: evidence from the universe of firms

Giacomo Roma (Bank of Italy)
Sauro Mocetti (Bank of Italy)
Andrea Cintolesi (Bank of Italy)

Abstract

Burdensome entry regulation can be a key deterrent to productivity growth, particularly in the service sector that is characterized by a more limited competition. We examine this issue using a novel indicator of entry regulation at the 5-digit sector level, relying on a unique dataset that covers the universe of firms and exploiting various reforms that changed the extent of entry regulation across sectors and over time. First, we show that just as productivity varies significantly between economic activities belonging to the same industry, entry regulation is also very heterogeneous within the same industries. Second, we find that a reduction of entry regulation is associated to a significant increase in productivity and a decrease in prices. Third, the productivity growth is attributable to an increase in the productivity of both new entrants (i.e., positive selection at entry) and incumbents, partly due to improved allocative efficiency. Finally, the impact of entry regulation on productivity is heterogeneous across industries and geographical areas, being stronger in sectors characterized by a higher <> entry rate and in areas with higher demand of services.

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