Regulation and Economic Performance: A literature review

Regulations and institutional factors can determine economic performance by influencing the efficiency with which the product and labour markets operate. This paper reviews the main theoretical channels by which regulation can have an impact on economic outcomes, such as productivity, investment, innovation and employment, and examine some of the empirical relationships found in the literature. The paper highlights evidence that points to positive effects that de-regulation of the product markets have on performance, , focusing especially on the indirect effects associated with de-regulation of key services sectors. Special attention is paid to two services sectors widely sheltered from competition forces, namely professional services and the financial sector. The paper also discusses aspects of labour market regulation. It concludes that the channels underpinning associations between regulation and performance in service sectors remain largely unexplored and further empirical work is needed.