Working Paper: CEPR ID: DP5849
Authors: Rachel Griffith; Rupert Harrison; Helen Simpson
Abstract: European Union countries have implemented widespread reforms to product markets in order to stimulate competition, innovation and economic growth. We provide empirical evidence that the reforms carried out under the EU Single Market Programme (SMP) were associated with increased product market competition, as measured by a reduction in average profitability, and with a subsequent increase in innovation intensity and productivity growth for manufacturing sectors. In our analysis we exploit exogenous variation in the expected impact of the SMP across countries and industries to identify the effects of reforms on average profitability, and the effects of profitability on innovation and productivity growth.
Keywords: competition; innovation; productivity growth
JEL Codes: L1; O31; O47
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Product market reforms (E69) | Increased product market competition (L19) |
| Increased product market competition (L19) | Decreased average profitability (D22) |
| Decreased average profitability (D22) | Increased R&D intensity (O32) |
| Increased R&D intensity (O32) | Faster TFP growth (O49) |
| Product market reforms (E69) | Faster TFP growth (O49) |
| SMP (E16) | Negative impact on R&D intensity in high-tech sectors (O39) |
| SMP (E16) | Negative impact on TFP growth in high-tech sectors (O49) |