Griffith, R; Harrison, R; Simpson, H; (2006) Product market reform and innovation in the EU. The Institute for Fiscal Studies, UCL (University College London), The Institute for Fiscal Studies

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Abstract

European Union countries have implemented widespread reforms to productmarkets in order to stimulate competition, innovation and economic growth. We provideempirical evidence that the reforms carried out under the EU Single Market Programme(SMP) were associated with increased product market competition, as measured by areduction in average profitability, and with a subsequent increase in innovation intensityand productivity growth for manufacturing sectors. In our analysis we exploit exogenousvariation in the expected impact of the SMP across countries and industries to identify theeffects of reforms on average profitability, and the effects of profitability on innovationand productivity growth. European Union countries have implemented widespread reforms to productmarkets in order to stimulate competition, innovation and economic growth. We provideempirical evidence that the reforms carried out under the EU Single Market Programme(SMP) were associated with increased product market competition, as measured by areduction in average profitability, and with a subsequent increase in innovation intensityand productivity growth for manufacturing sectors. In our analysis we exploit exogenousvariation in the expected impact of the SMP across countries and industries to identify theeffects of reforms on average profitability, and the effects of profitability on innovationand productivity growth.

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