Upstream Product Market Regulations, ICT, R&D and Productivity

Our study aims to assess the actual importance of the two main channels via which upstream anti-competitive sector regulations are usually considered to impact productivity growth, i.e. by acting as a disincentive to business investments in R&D and in ICT. We estimate the specific impacts of these two channels and their shares in the total impact as opposed to alternative channels of investments in other forms of intangible capital that we cannot explicitly consider for lack of appropriate data such as improvements in skills, management and organization. To achieve this, we specify an extended production function explicitly relating productivity to R&D and ICT capital as well as to upstream regulations, and we specify two factor demand functions relating R&D and ICT capital to upstream regulations. These relations are estimated on the basis of an unbalanced panel of 15 OECD countries and 13 industries over the period 1987-2007. Confirming the results of previous similar studies, our estimates find that the impact of upstream regulations on total factor productivity can be sizeable, and they provide evidence that a good part of the total impact, though not a predominant one, is transmitted through investments in both R&D and ICT, and particularly the former