Threshold effects in the regulation-innovation nexus: evidence from the telecommunications industry

This study empirically tests the relationship between regulation and innovation in the telecommunications sector by deploying an efficient panel threshold model. The balanced panel dataset comprises of 32 OECD countries over the period 1995-2012. The empirical results unveil that beyond a certain threshold, a further increase in the (de)regulatory intensity leads to a decrease of the sectoral innovation activity. The empirical findings do explain the descriptive evidence of an inverted U-shaped relationship between regulation and innovation in the telecommunications sector since structural non-monotonic relationships are uncovered. Lastly, this study provides significant policy implications, arguing that regulators should develop mechanisms fostering innovation activity without much affecting the intensity of market competition.