Gaëtan Nicodème (Directorate General for Economic and Financial Affairs) and Jacques-Bernard Sauner-Leroy (Banque de France)
(European Economy. Economic Papers. 218. December 2004.
Brussels. 29pp. Tab. Free.)
KC-AI-04-218-EN-C ISBN: 92-894-8365-2 ISSN: 1725-3187
Product market reforms are structural reforms of microeconomic type that aim at improving the functioning of product markets by increasing competition amongst producers of goods and services.
Theoretical models suggest that regulation and reforms which liberalise or improve the functioning of markets can positively affect productivity through three different channels, namely
a reallocation of scarce resources (allocative efficiency),
an improvement in the utilisation of the production factors by firms (productive efficiency) and
an incentive for firms to innovate to move to the modern technology frontier (dynamic efficiency).
This paper reviews the theoretical and empirical literature on these three channels.