Regulatory reforms to boost product market competition in services and growth of manufacturing

What are the economic implications on manufacturing sectors from anti-competitive upstream service market regulation? How large are the effects of adequately regulated service activities, used as inputs to manufacturing sectors? Are the economic implications of these regulations very different for manufacturing sectors? We use a globally available firm-level dataset for developing countries to address these questions. The main contribution of our paper is two-fold. First, this paper studies whether manufacturing sectors that rely more intensively on adequately regulated service activities as inputs perform better than those exposed to more anti-competitive upstream services market regulation, which is essential for providing more granular policy advice on service market regulation. Second, our paper uses new data that captures comprehensively the status of product market regulation for non-OECD countries, aiming to provide new insights for non-OECD economies. For the first time, this paper analyzes these new data from a descriptive perspective, and tests if the findings from OECD countries hold for a broader set of developing economies as well. In addition, the paper also uses more recent data which is highly relevant in the context of the discussion about the “new normal” low-growth environment (International Monetary Fund (IMF), World Economic Outlook, October 2016). Finally, our paper also attempts to address potential endogeneity and measurement concerns, associated with the index of service regulation using an instrumental variables (IV) strategy. Our results provide important insights for possible differing economic implications of the two types of service sector regulation, namely anti-competitive upstream service market regulation versus regulated service activities, used as inputs to manufacturing sectors, in non-OECD countries.