Reducing regulatory barriers to competition or market entry stimulates business
investment, including in KBC, and thereby improves productivity.
The impacts on
investment are especially large for regulation restricting entry (Alesina et al., 2005;
Nicoletti and Scarpetta, 2005; OECD, 2015d). While Germany has made much progress in
reforming product market regulation in general over the past 15 years, regulation in some
services, especially professional services, network industries and crafts, remains
restrictive (see the OECD Economic Survey of Germany 2014, OECD, 2014a).
In Germany investment in KBC is particularly low in the services, both compared to other high-income
countries and compared to German manufacturing. The estimated contribution
of investment in KBC to services productivity growth has been also lower than in other
advanced EU economies (Corrado et al., 2014). Less stringent regulation increases the
diffusion of knowledge, which contributes to productivity growth (OECD, 2015d).