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

Our study investigates the importance of two main channels through which upstream anti-competitive sector regulations impact productivity growth: investments in R&D and in ICT, as opposed to alternative channels we cannot explicitly consider for lack of appropriate data such as improvements in skills, management and organization. We specify a three equations model: an extended production function relating total factor productivity to both R&D and ICT capital, and to upstream regulations, and two factor demand functions relating R&D and ICT capital to upstream regulations. We estimate these relations on an unbalanced panel of 15 OECD countries and 13 industries over the period 1987-2007. We find that the total impact of upstream regulations on total factor productivity is sizeable, a large part of which is transmitted through investments in R&D and ICT, mainly the former.