Regulations and productivity: Long run effects and nonlinear influences

- This article studies the impact of regulations on Total Factor Productivity (TFP).
- The results are clearly in favor of a negative long run influence of regulation on TFP growth.
- Short run effects of regulation on TFP are not always statistically significant.
- The impact of regulatory changes is more negative in countries with already high levels of regulation.
- The harmful effects of regulation are more intense in countries with low technology gaps.

This study examines the impact of product market regulations on Total Factor Productivity (TFP) and explores whether regulatory reforms exert a nonlinear influence on TFP growth. It also distinguishes between short run and long run effects of regulation. The obtained empirical evidence reveals that lower regulations in the long run exert a significantly positive effect on TFP of OECD countries. Short run effects of regulation are not always statistically significant. The influence of regulatory changes is higher in countries with high levels of regulation. Also, the damaging effects of regulation are more intense in countries with low technology gaps. These results hold across a wide array of econometric specifications and variables that measure regulation and TFP.