Product markets’ deregulation: a more productive, more efficient and more resilient economy?

This paper assesses the impact of product market deregulation in upstream sectors on the productivity
growth of firms in downstream sectors (i.e. those firms using the output of the reformed sectors as inputs in
their production process). Relying on a firm level database for the period 2004-2014 covering all
Portuguese firms, we show that reforms bring productivity gains already in the short-run and that are
sustained in the long-run. The effects are more positive for those further away from the technological
frontier and are also heterogeneous across sectors. In addition, reforms potentiate the exit of the least
productive firms, improving the resource allocation in the economy by a process of selection – for the least
productive, only those that have scope to catch-up with the frontier are able to remain. Finally, we show
that the adoption of product market reforms in upstream sectors leads to a more resilient economy, better
equipped to face adverse shocks.