use US input-output tables to proxy each industry’s dependency on the network and professional services sector. The authors then rely on these dependencies to create a weighted average score for the regulatory stringency each sector is exposed to through its relevant upstream network and professional services sectors. They then show that service regulation has a significant negative effect on the growth rate of value-added, labor productivity, and exports of downstream industries.

With a focus on labor market outcomes, Bassanini (2015) discusses the short-term effect of lowering entry barriers in three network industries (public utilities, transport, and communications) on industry employment. The author documents a reduction in employment prior to and shortly after the reforms are implemented. He conjectures that this finding hinges on the structure of the downstream sectors considered, which generally consist of large incumbent firms which—compared to small firms as are more predominant in the retail sector, for example—have more scope for protecting their standing in the market by engaging in immediate re-organization and reduction of overstaffing after deregulation. He argues that in sectors dominated by small firms, new entrants following deregulation may even help achieve overall employment growth in the short run.

Gal and Hijzen (2016) use cross-country firm-level data from the Amadeus/Orbis database to examine the effects of product market deregulation in three sectors (network industries, retail trade, and professional services). Using local projection techniques, they find positive effects of product market reforms on capital, output, and employment in the respective sector of the reform. To identify downstream spillovers, they construct indirect measures that weigh reforms in upstream industries in a way that reflects their importance for downstream production. In addition to using national industry-level input-output tables, the authors also consider cross-country linkages and firm-level information about the general reliance on intermediate inputs in production. They find positive spillovers on firms in downstream industries both domestically and abroad. Furthermore, their results suggest that the impact of upstream reforms is more positive for downstream sectors that exhibit a high level of competition ex-ante. Compared to services, manufacturing firms showed greater increases in employment, value-added, and output after the reform. Intuitively, more competition is associated with a higher output elasticity with respect to prices, such that a reduction in prices of intermediate inputs will lead to larger effects on output and employment.

Focusing on 26 advanced economies, Duval and Furceri (2018) rely on a narrative database of major reform shocks in a wide range of product and labor market areas. On the product market side, the reforms take place in any of the following sectors: telecommunications; postal services; electricity; gas; and air, rail, and road transport. In one section of the paper, the authors examine the impacts of deregulation on a sectoral level to understand the indirect effects that deregulation of a sector can have on upstream sectors (through forward spillover via reduced prices and increased quantities) and downstream sectors (through increased demand for intermediate inputs following deregulation). They find a statistically significant impact on output in both downstream and upstream industries of about 0.3 percent on average 4 years after the reform. This is mainly driven by increased labor productivity (as opposed to increased employment levels).

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