Market power, productivity and the EU Single Market Program: Evidence froma panel of Italian firms

This paper provides empirical evidence on the impact the EU Single Market P rogram has exerted on market power and total factor productivity in a large sample of Italian firms. Both market power and total factor productivity a re estimated by applying several extensions of the methodology developed by Hall. Main findings can be summarised as follows. Firstly, for the sample of '1992 most sensitive' firms market power decreases by 50% in the SMP imp lementation period compared to previous years, whereas no clear pattern eme rges for the other sub-samples of firms. Secondly, and less conclusively, o nly for the sub-sample of '1992 most sensitive' firms a positive transitory shock to productivity growth rates is observed immediately after the annou ncement of the reform project. Overall, these results are consistent with t he long standing view that economic integration reduces firms' market power and increases productivity via the removal of non-tariff barriers. (C) 200 1 Elsevier Science B.V. All rights reserved. JEL classification: L1; O3; F1 .