Firm behavior, market deregulation and productivity in Spain

Abstract

The aim of this paper is to analyze the evolution of productivity and how firm behavior and institutional conditions affects productivity. For that purpose, we use a longitudinal sample of Spanish manufacturing and services companies between 1983 and 2006, as well as OECD indicators on product market regulations. The productivity measurement is based on the control function approach, to overcome the endogeneity bias. Both for manufacturing and services firms, we have found that the share of temporary employment tends to reduce productivity, the effect being stronger for services firms, which make a more intensive use of this employment type. Our results also show that increases in competition lead to productivity improvements. Besides, those manufacturing firms who keep undertaking inhouse production of services tend to be more productive. The lack of competition in the services sector may be preventing firms to increase specialization while outsourcing nonmanufacturing activities