The short-term impact of structural reforms on productivity growth: beyond direct effects

In recent years, literature has linked structural reforms with productivity growth. Considering Portugal’s recent comprehensive reform agenda, this topic acquires particular relevance. Using data for Portuguese firms for the period 2006-2014, this paper assesses the impact of structural reforms on firm’s productivity in the short-run. In line with existing literature, the analysis reveals that some reforms produce positive effects already in the short-run. There are, however, important differences across reform areas and firms, namely when comparing those at the technological frontier and the others. In particular, frontier firms are better equipped to materialize the gains of improved framework conditions and to deal with competitive pressures, grasping more often short-term gains. In any case, gains for those at the frontier are also beneficial for laggards via spillover effects, as both diffusion and catching-up mechanisms are, in general, positive for Portuguese firms. Finally, our analysis shows that, in the short-run, these spillovers may be potentiated or curbed by reforms, which therefore impact the economy also through indirect effects. Indeed, while pass-through is, in most cases, hampered by reforms, the effects on catching-up mechanisms are mixed; they improve with some reforms but are deteriorated with others.