Regulation, Innovation and Productivity

Francisco Marcos (IE Law School)
Juan Santaló (IE Business School)

Abstract: This paper estimates the average effect of regulatory intensity and administrative redtape on productivity and innovation. For this purpose we exploit the exogenous variation of the decentralization process that has taken place in Spain during the last three decades. Using objective proxies for legislative and regulatory activity such as the number of pages and number of new norms published in the regional legislative reporters we find a strong negative impact of regulatory intensity on regional innovation and productivity. This negative effect of regional regulation is not only statistically significant but also of large economic importance and can help to explain the absence of productivity growth of Spain in the last decades. Finally, we provide evidence that regulatory intensity has affected the size distribution of business establishment reducing its skewness and therefore affecting asymmetrically more those business establishments that are more likely to innovate.

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