Regulation and growth reloaded: Lessons from 25 years of retail trade and professional services reforms

Retail trade and professional services employ a large share of workers across OECD countries and provide key intermediate inputs to downstream sectors. This column examines how regulation in these sectors spills over to productivity in the wider economy. New data show that anti-competitive regulations in upstream service sectors curb long-run labour productivity performance in downstream sectors. On average across the OECD, deregulation in retail trade and professional services between 1998-2023 raised aggregate labour productivity by 1% and 1.5%, respectively. While this productivity dividend is modest relative to the gains from network sector liberalisation, there remains significant scope for further reform-driven productivity gains given that market service sectors remain sheltered from competition in many OECD countries.

After two decades of weak productivity growth across OECD economies, policymakers are once again focusing on product market reforms as a lever to boost competition, innovation, and resource reallocation (Adilbish et al. 2025, Andrews et al. 2025a, Impullitti and Rendahl 2025, Andrews and Égert 2026). Retail trade and professional services, such as legal, accounting and engineering services, matter for at least two reasons: they employ a large share of workers, and they provide key intermediate inputs to downstream sectors. When regulation raises entry costs or limits operating scale, it can weaken competitive pressure and slow innovation and technology adoption, with knock-on effects across the economy. In some cases, regulation may be necessary, for instance to address information asymmetries, quality concerns, consumer protection issues or negative externalities. In those instances, regulation should achieve these objectives while minimising unnecessary restrictions on competition.

We analyse a new OECD dataset that extends comparable indicators of retail trade and professional services regulation back to 1998 for 15 OECD countries, observed at five-year intervals (1998, 2003, 2008, 2013, 2018 and 2023). We combine these regulation indicators with input-output data to trace how upstream regulatory burdens affect performance in more than 20 downstream non-farm business sectors.

Deregulation raises productivity mainly through value added

Professional services and retail trade are non-negligible upstream inputs. On average across the OECD, downstream sectors source almost 6% of their intermediate inputs from professional services and around 3% from retail trade, compared with about 20% from network industries (energy, transport and communications). If downstream sectors rely more heavily on inputs from a regulated upstream service, they should be more affected by changes in that service’s regulatory environment. These linkages imply that sector-specific reforms can generate economy-wide productivity spillovers.

To quantify spillovers, we construct a regulatory impact indicator (REGIMPACT) by interacting upstream regulation scores with downstream input-output intensities, following the approach of Bourlès et al. (2013) and more recently Andrews et al (2025b). REGIMPACT varies by country, downstream sector and time because it captures both (i) how stringent regulation is in upstream professional services and retail trade, and (ii) how intensively each downstream sector uses inputs from those services.

Regression results show a robust negative relationship between services REGIMPACT and downstream labour productivity: when upstream retail trade and professional services are less restrictive, downstream sectors that depend more on these inputs tend to have higher productivity. Complementary regressions suggest that this relationship is mainly associated with higher real value added in downstream sectors, while the estimated effects on employment and investment are limited. This means that the productivity gains do not appear to come primarily from lower employment raising value added per worker or from a strong investment response. 

The likely mechanism is that less restrictive upstream service markets make key business services cheaper, better, more reliable, or easier to access. Downstream firms can then use retail, legal, accounting, engineering, and related services more efficiently, lowering operating frictions and improving production organisation. The data do not allow us to distinguish cleanly between lower service prices, higher service quality, greater use of these inputs or changes in mark-ups. The results should therefore be interpreted cautiously, but they are consistent with services reforms improving downstream efficiency rather than simply expanding labour or capital inputs.

Figure 1 Regulation has eased, but remains heterogeneous across countries (scale 0-6, 0= least regulated and 6=most regulated)

A) Retail trade regulation

B) Professional services regulation

Note: Professional services regulation is the simple average of regulation of accountants, lawyers, engineers and architects. Countries with similar initial levels of regulation are grouped together for retail trade and professional services regulation, which explains the different country groupings in Panels A and B.

Past reforms delivered modest but meaningful economy-wide gains

A first policy simulation translates the estimated relationship into implied productivity gains from the deregulation that occurred between 1998 and 2023. Applying our baseline coefficients to observed changes in the services REGIMPACT indicator suggests that:

• Across OECD countries, past reforms in retail trade and professional services raised economy-wide labour productivity by around 1% and 1.5%, respectively, driven by broadly similar gains in real value added.
• The estimated gains were concentrated in countries that undertook comparatively large retail and professional-services reforms, such as Belgium, Italy, and Spain, reflecting the greater scope for competition-enhancing deregulation in these countries.
• For the same country group and period, the estimated productivity gains from services reforms are smaller than those from past network-sector deregulation, reflecting the earlier and more far-reaching liberalisation of network industries. Andrews et al. (2025a, 2025b) show that, across the OECD, deregulation in network industries from 1980 to 2023 lifted labour productivity by about 5%, with especially strong gains in manufacturing. And with the corresponding 1998-2023 period, we estimate that network sector deregulation boosted labour productivity by about 3% on average across the OECD

Figure 2 Aggregate labour productivity gains associated with past deregulation, 1998-2023

A) Retail trade

B) Professional services

Future gains from further reform are sizable – and exceed those from network sectors

A second policy simulation benchmarks current regulation (2023) against the average of the three least regulated OECD countries. For 2023, a broader regulatory dataset is available for 29 OECD countries, allowing a richer cross-country comparison. The results indicate substantial remaining scope for productivity-enhancing reforms:

• On average, the prospective gains from deregulating retail trade are larger than those from liberalising professional services (above 2% versus below 2% in the baseline simulation).
• Reform packages of a size observed in past deregulation episodes could still deliver meaningful gains for countries where regulation remains stringent. For example, Spain’s largest past retail reform episode would close only about half the regulatory gap faced in 2023 by the most regulated country, Portugal. For today’s laggards, such a reform is estimated to lift labour-productivity gains by about 1.5% to 2.5%. For professional services, the corresponding estimate is around 1% to 2%.
• Potential gains vary widely. France, Greece, Italy, Mexico, and Korea stand out as countries with larger remaining scope for reform in both sectors, while Chile and the United Kingdom are already among the least regulated.

Figure 3 Simulated labour productivity gains from moving to the average of the top three least regulated countries, 2023

A) Retail trade

B) Professional services

Policy implications

With network industries already comparatively liberalised, retail trade and professional services increasingly represent a promising frontier for reform-driven productivity gains. Priorities vary by country, but three broad directions emerge:

• Reduce barriers to entry and expansion. Streamline licensing and registration, simplify zoning and store-size restrictions, and review rules on opening hours and promotions where they unduly limit competition.
• Modernise professional services regulation while safeguarding quality. Revisit reserved activities, ownership and organisational restrictions and limits on advertising and fee-setting. Where quality concerns are genuine, favour proportionate, transparent requirements (for example, certification and liability rules) over restrictions that reduce contestability.
• Strengthen implementation and pro-competitive enforcement. Ensure that reforms are complemented by effective competition policy, regular ex post evaluation, and regulatory impact assessments that account for spillovers through input-output linkages.

Reinvigorating the regulatory reform agenda in services offers a concrete path to lift productivity and output in the years to come, complementing earlier waves of network-sector liberalisation.

Source : VOXeu