Product market regulation reforms directly affect firm entry, innovation and reallocation, and thus productivity and economic growth. This column leverages the 2025 update of the OECD Energy, Transport and Communications Regulation indicator to show that anticompetitive regulations in upstream sectors curb long-run economic performance in downstream sectors. Across the OECD, deregulation in network industries between 1980 and 2023 raised labour productivity by about 5%, with larger gains in manufacturing. The fading effects of product market reforms can account for up to one-sixth of the post-2005 productivity slowdown. Looking forward, reloading network sector deregulation could yield smaller, yet still material, productivity gains.
After two decades of weak productivity growth, policymakers across the OECD maintain a keen interest in understanding the sources of the productivity slowdown. One key driver is the stance of product market regulation (Blanchard and Giavazzi 2001, Hijzen and Gal 2016, Cette et al. 2018). Product market regulation reforms directly affect firm entry, innovation, reallocation, and productivity (Nicoletti and Scarpetta 2003, Westmore 2013, Andrews et al. 2016). Liberalising network sectors, including energy, transport, and communications, boosts performance within those sectors (Alesina et al. 2011, Bouis et al. 2016, Bassanini and Cingano 2017). Yet evidence on the indirect effects of upstream regulation on downstream productivity (Bourlès et al. 2013) remains limited and often outdated. In a new paper (Andrews et al. 2025), we present new empirical evidence on how network sector deregulation affected labour productivity in downstream sectors in the past and on the potential gains that could be realised in the future.
Network sector regulation eased significantly over the past five decades
Since the late 1990s, many OECD countries have shifted from vertically integrated, state-controlled monopolies in network sectors (such as energy, transport, and telecommunications) towards more competitive market structures. This transformation is reflected in declining energy, transport, and communications regulation (ETCR), with deregulation trends starting in English-speaking countries in the 1980s (and the late 1970s in the US), followed by EU countries and Japan in the 1990s, and more recently in Central and Eastern Europe (Figure 1). While telecommunication has seen the most extensive liberalisation, significant regulatory barriers to competition remain in energy and transport. Early reforms focused on reducing public ownership, particularly via privatisation, but over time the most notable progress has been in reducing barriers to entry.
Figure 1 Network sector regulation, 1975-2023
Scale 0-6, 0=least regulated and 6=most regulated
Note: OECD average includes the OECD countries covered by the dataset used in the empirical estimations. EU includes EU member countries before the Eastern Enlargement. CEE comprises Czechia, Estonia, Hungary, Poland, Slovakia and Slovenia. EME includes Chile, Mexico and Türkiye.
Network sector regulation has a potentially large effect on downstream-sector productivity and growth
The stance of regulation in network sectors carries potential direct implications for economic performance in those very sectors, as network sectors account for 9% of value added on average in OECD countries. But network regulation can also indirectly impact firms in downstream sectors that rely on network sectors for inputs. We analyse this indirect effect in this column. On average across the OECD, downstream sectors source around 20% of their intermediate inputs from network industries, with manufacturing sectors more exposed to network sectors than business services. Within manufacturing, energy is the most important input. This is especially the case for highly exposed industries like basic metals and rubber products, where the share of energy sector output in intermediate inputs exceeds 20% in the typical OECD country. Transport services are significant across all sectors, whereas telecoms account for a smaller share.
The 2025 OECD REGIMPACT indicator helps to quantify this effect
The OECD REGIMPACT indicator measures the indirect effect of regulatory barriers to competition in network sectors (like energy, transport, and telecommunications) on productivity in downstream industries. Available from 1975 to 2023, it combines the intensity of regulation in upstream network sectors as captured by the ETCR indicator, which reflects barriers to entry, public ownership, and market structure in six sectors; and the degree of reliance that each downstream (non-network) sector has on inputs from these regulated industries, based on input–output linkages.
REGIMPACT is calculated by weighting the ETCR score of each network sector by how much a downstream industry depends on it. This approach provides a sector- and country-specific time series of how upstream regulation may hinder productivity indirectly across the broader economy. It is particularly useful for assessing how liberalisation in network sectors can cascade into wider productivity gains (Figure 2).
Figure 2 The OECD REGIMPACT indicator
Past network sector reforms yielded sizeable productivity gains
We find clear evidence that anticompetitive regulations in upstream sectors curbs long-run economic performance in downstream sectors, even after controlling for time-varying country-specific factors (e.g. country-level policies and shocks), global time-varying sector-specific influences (e.g. technological progress) and stable country-sector factors (e.g. comparative advantage) (Andrews et al. 2025). And the economic growth dividend from network sector deregulation was substantial (Figure 3):
- First, across OECD countries, the average cumulative economy-wide increase in labour productivity from upstream reforms is estimated at around 5%, reflecting gains to real value added (~6%), employment (~2%) and the real capital stock (~4%). And the economic dividend for the manufacturing industry is estimated to be more than double, reflecting its heavier reliance on inputs from regulated upstream sectors, in particular energy and transport.
- Second, the productivity-enhancing effects of network sector deregulation have not been evenly distributed over time. On average across the OECD, the bulk of the gains are concentrated between 1995 to 2005, dwarfing benefits before and afterwards.
- Finally, country-specific estimates also suggest that the timing of reforms and realisation of economic gains varies across countries. Most of the economic dividends from upstream liberalisation were realised prior to 1995 in early reformers such as Canada, Finland, New Zealand or the United States. By contrast, the ‘late movers’ – including Germany, Greece, Slovakia, Poland, and Italy – realised more of the reform-related productivity gains after 1995.
Figure 3 Labour productivity gains implied by past network sector deregulation, 1980-2023
Note: Estonia, Portugal and Sweden are not displayed because of missing data for earlier years of the sample period. * denotes that the first period for the US refers to 1975-1995 to capture the reforms enacted during the late 1970s.
The slowdown in network sector deregulation explains one-sixth of the overall productivity slowdown since 2005
The trajectory of network sector liberalisation is useful for understanding why productivity accelerated from the mid-1990s and then slowed after 2005. The ICT-fuelled productivity boom from the 1995-2005 coincided with a wave of network sector deregulation, which contributed an estimated 0.25 percentage points to annual labour productivity growth on average across OECD countries. After 2005, the economic dividend from upstream deregulation began to fade, contributing just 0.05 percentage points. Given that labour productivity growth declined by 1.25 percentage points after 2005, the slowdown in deregulation could account for one-sixth of the productivity slowdown.
Further network sector deregulation is likely to boost productivity
There remains meaningful room for further network sector deregulation and productivity gains. Assuming that the most regulated OECD countries converged to the regulatory levels of the least regulated would yield economy-wide labour productivity gains of up to 1.7% on average across OECD countries, with manufacturing productivity growing by up to 6%, and business services by 2%. The country-specific results highlight large potential for lagging countries – for example, eight OECD countries stand to gain around 1%, while Mexico and Korea could achieve gains of 1.7% in productivity if they were to fully align with best practices. Even moderate reforms, implying a move from the current level to the OECD average could yield 1% gains in labour productivity. Convergence of the OECD average to the level of the least regulated countries would result in smaller gains of around 0.6%.
While these projected gains are lower than those implied by past regulatory reforms between 1995 and 2023, they are economically significant, particularly in the context of the near-zero productivity growth in many countries over the past five years. Taken together, these results underscore the significant economic benefits that could still be realised through further deregulation of network industries, especially for the most regulated OECD countries.
Source : VOXeu
