GTIPA Perspectives: How Smart Deregulation Can Unleash Powerful Innovations Worldwide

GTIPA Perspectives: How Smart Deregulation Can Unleash Powerful Innovations Worldwide

Contents

Introduction. 2

The Challenge of Regulatory Accumulation. 3

The Economic Costs of Regulatory Accumulation. 3

Regulation, Informality, and Distorted Growth. 4

Quantifying the Gains From Deregulation. 4

Country Case Studies 5

Agriculture. 5

Energy 6

Finance. 6

Telecommunications and Digital Infrastructure 7

Transportation. 7

Business Environment and Administrative Simplification. 8

Full Report 9

Endnotes 9

Introduction

The Global Trade and Innovation Policy Alliance (GTIPA) represents a global network of over 50 independent, like-minded think tanks from over 40 economies across the world who believe that trade, globalization, and innovation-conducted on private enterprise-led, market-based, rules-governed terms-can maximize welfare for the world's citizens. The Alliance exists to collectively amplify members' voices and enhance their impact on trade, globalization, and innovation policy issues while introducing new scholarship into the world on these subjects. Among their shared principles, GTIPA members are committed to approaching globalization and trade through an innovation-based perspective. This perspective recognizes the immense potential of innovation in improving existing processes, products, services, and business models, and its role in expanding economies and promoting sustainable development.

This report highlights the mounting economic costs of burdensome regulations that exact far more costs than benefits on societies-and which in many countries have led to unchecked regulatory accumulation-and the adverse impact on innovation, productivity, and long-term growth they cause. Across advanced and developing economies alike, layers of outdated, duplicative, and often conflicting regulations have accumulated over decades, with little systematic reevaluation. This regulatory burden is particularly harmful to startups and small firms, which face disproportionate compliance costs and reduced flexibility. Evidence shows that excessive regulation slows investment, distorts the Schumpeterian process of creative destruction, and incentivizes informality, especially in emerging markets where a significant portion of the labor force operates outside the formal economy. According to the International Monetary Fund (IMF), in sectors such as textiles and construction informality can exceed over 60 percent of the world's adult labor force, stunting sustainable growth. Meanwhile, studies find that streamlining regulation, particularly by liberalizing market entry, can unlock substantial economic gains. For instance, moving from median- to least-regulated among Organization for Economic Cooperation and Development (OECD) countries could boost employment growth by 1 percent annually. As such, effective reform efforts must go beyond rule-counting and focus instead on reducing compliance costs, fostering innovation, and ensuring that regulation supports rather than stifles dynamic economic activity.

To be sure, effective regulations are critically important to the success of countries' advanced technology industries. For instance, if countries wish to lead in biopharmaceutical innovation, governments need to implement effective drug regulatory agencies to ensure that the drugs industry develops are indeed safe and efficacious. A good example of regulatory innovation comes from the United States. In the mid-1980s, it took on average three years for the U.S. Food and Drug Administration (FDA) to complete drug evaluations. In 1992, the United States introduced the Prescription Drug User Fee Act (PDUFA), which permitted the FDA to collect user fees from industry, helping ensure the agency could be adequately staffed with high-quality personnel and appropriate workflow and project-management frameworks to support making accurate and timely determinations regarding the safety and efficacy of new human drug applications for approval.^[1] Today, the FDA makes drug safety and efficacy determinations in about 10 months, with no decrease in the accuracy of those determinations. Similarly, if countries want to manufacture innovative commercial airplanes or autonomous vehicles, regulatory systems need to validate the safety of these systems, while eschewing overly burdensome regulations. When it comes to regulation-just as for innovation-the choice isn't between all government or no government, it's about what's the optimal level of government engagement in fostering sensible regulations that effectively enable innovation.

This volume compiles vignettes from thirteen countries: Argentina, Australia, Bangladesh, Brazil, Bulgaria, Chile, Colombia, Costa Rica, Ecuador, Germany, India, Indonesia, Italy, Korea, Pakistan, Philippines, Poland, and the United States.

The Challenge of Regulatory Accumulation

A common pattern across countries has been the accumulation of regulatory layers over the past several decades, often without consistent reevaluation. In the United States, the U.S. Code of Federal Regulations alone exceeds 170,000 pages. This regulatory buildup often results in conflicting rules, reduced business agility, and increased compliance costs, especially for startups and small businesses. Most significantly, excessive regulation suppresses innovation and slows productivity and gross domestic product (GDP) growth across sectors.

Regulatory agencies frequently lack the institutional mechanisms or political will to systematically review existing rules to determine which are outdated, duplicative, or counterproductive. As a result, the system tends to be reactive rather than adaptive.

Another significant challenge to deregulation has been the accumulation of privileges and benefits these regulations have created over time. As laws and rules are promulgated, they often confer advantages, whether intentionally or not, on specific interest groups. These may include favorable tax treatments, trade protections, government subsidies, monopolistic or oligopolistic positions, elevated wages in protected sectors, or enhanced political influence. Once granted, these benefits become entrenched. Both private actors and segments of the public which benefit from the status quo are likely to resist any reform that threatens their position. This creates a powerful constituency for regulatory inertia. Attempts to roll back regulations are often framed as attacks on jobs, national interests, or fairness, even if the regulations in question distort markets, reduce efficiency, or limit innovation. As a result, deregulation becomes not just a technical task, but a deeply political one, entangled in negotiations over power, privilege, and distribution.

The Economic Costs of Regulatory Accumulation

Empirical evidence underscores the economic costs of overregulation. Several studies show that regulatory barriers, particularly barriers to market entry, are negatively associated with investment levels. Regulatory reforms that liberalize entry, on the other hand, are strongly correlated with increased investment and productivity.

Anti-competitive product market regulations significantly reduce employment across OECD countries.^[2] Additional research reveals that such regulations hinder multifactor productivity growth, while others identified a positive relationship of having a stronger protection of intellectual property rights, as they tend to be associated with higher research and development (R&D) intensity.^[3]

Research by the National Bureau of Economic Research (NBER) has found that in industries undergoing substantial regulatory reforms, deregulation led to long-term increases in investment. Notably, the most impactful aspect of reform was the liberalization of market entry, while industry-level privatization had relatively limited effects. The marginal benefits of deregulation were greatest when reforms were more comprehensive, and the initial level of regulation was high.^[4]

Macroeconomic models further suggest that sequencing reforms, starting with product market deregulation, can reduce opposition to labor market reforms by first diminishing the rents available in union-firm bargaining processes. However, such sequencing may be difficult in consensus-driven political systems where veto players limit reform momentum.^[5]

Regulation, Informality, and Distorted Growth

The World Bank has identified two main channels through which regulation can harm economic growth. First, regulation distorts the Schumpeterian process of creative destruction, limiting firm dynamics and innovation. Second, excessive regulation incentivizes firms to operate informally to avoid compliance costs.^[6]

Several studies show that regulatory barriers, particularly barriers to market entry, are negatively associated with investment levels.

In many countries, especially in developing economies, firms respond to burdensome regulations by moving into the informal sector. In Argentina, for example, 42 percent of the workforce operates informally, with some sectors, like textiles and construction, seeing informality rates in excess of 70 percent.^[7] These firms often stay suboptimally small, use informal supply chains, and divert resources to avoid detection or bribe officials. This results in slower, less sustainable economic growth.

Quantifying the Gains From Deregulation

A broad body of research quantifies the economic benefits of reducing regulatory burdens. The IMF estimates that a country moving from the median to the least-regulated decile among OECD nations could gain roughly 1 percent in annual employment growth.

Cumulative U.S. regulations between 1980 and 2012 reduced GDP growth by about one percentage point annually, mainly by distorting and discouraging business investment.^[8] Other studies suggest that a 10-percentage-point increase in regulatory burden reduces per capita income growth by 0.5 percentage points annually.^[9]

Historical examples support these findings. Deregulation of the United Kingdom's transport and communications sectors in the 1980s increased investment by roughly 3 percentage points. In the United States, the Office of Management and Budget (OMB) estimated that final rules issued in 2016 imposed between $74 billion and $110 billion in annual costs (in 2014 dollars)-and that fewer than 0.5 percent of those rules met the threshold for detailed economic evaluation.^[10]

The regulatory review process itself is often constrained by cost. For example, OMB only evaluates rules expected to cost over $100 million annually, and even then, only if the issuing agency has already conducted an analysis.

Federal regulatory agencies frequently propose rules without adequately considering their effects on innovation. This oversight stems from two persistent challenges: the political focus on short-term outcomes and a reluctance to challenge entrenched incumbents. ITIF's Stephen Ezell and Robert Atkinson have suggested addressing this gap by establishing an Office of Innovation Review (OIR) within OMB. The OIR would serve as a dedicated advocate for innovation within the regulatory process. Its mandate would include evaluating whether agencies are promoting innovation or unnecessarily hindering it and recommending alternative regulatory approaches that better support technological progress.^[11]

Cumulative U.S. regulations between 1980 and 2012 reduced GDP growth by about one percentage point annually, mainly by distorting and discouraging business investment.

Efforts to control new regulation, such as the United Kingdom's "one-in, one-out" policy, have yielded mixed results. A Centre for Policy Studies assessment found that by 2012, up to 50 percent of new regulations fell outside the policy's scope. The United Kingdom's National Audit Office estimates that while $1.1 billion in costs were eliminated since 2015, $10.4 billion in new compliance costs were imposed on businesses outside the scope of the policy.^[12]

Ultimately, what matters is not the number of regulations, but their net economic cost and their impact on innovation. Effective deregulation focuses on reducing compliance costs and encouraging innovation, not just eliminating rules.

Country Case Studies

Despite considerable variation in political context and policy instruments, the country case studies compiled in this report reveal several common themes in the design and implementation of deregulation approaches. These shared patterns underscore the global relevance of regulatory streamlining as a tool to spur innovation, increase competition, and unlock productivity growth. This volume highlights the innovation-inducing impacts of sensible deregulation across multiple sectors of nations' economies from telecommunications to finance, energy, transportation, agriculture, and other professional sectors.

Agriculture

Several of the case studies highlighted how deregulation is empowering innovations in agriculture.

▪Both Australia and India have reformed drone regulations to facilitate their use of smart agriculture (i.e., precision farming) applications. Australia also streamlined procedures for approvals for Internet of Things devices in remote areas (e.g., soil moisture sensors, livestock trackers).

▪To advance its food security agenda, Indonesia deregulated fertilizer subsidies and created an electronic registration system for them, streamlining the submission process and reducing regulatory bottlenecks.

▪In 2025, Pakistan's Prime Minister explicitly called for a "comprehensive regulatory framework to support innovation and transparency" in agriculture and introduced numerous reforms thereof.

Energy

Effective and well-functioning energy markets are indispensable for accelerating innovation and expanding economic opportunity. Clean energy technologies-from advanced batteries and hydrogen systems to carbon capture and next-generation nuclear-stand to capture significant shares of rapidly growing global markets, generating jobs and strengthening industrial competitiveness in the process. At the same time, oil and gas will remain integral to the global energy mix for decades, making it critical that markets incentivize the responsible and efficient use of these resources. In energy markets, deregulation often pursues dual goals of competitiveness and sustainability.

Examples:

▪Argentina liberalized its oil and gas sector while promoting renewables.

▪Australia and Brazil leveraged deregulation to attract private investment into renewables, particularly in mining-intensive regions where hybrid energy systems reduce diesel dependency.

▪Bulgaria completed a wholesale shift to market-based electricity pricing, integrated into the European Union (EU) energy grid.

▪Poland introduced market-based electricity pricing and supported the development of renewable energy auctions to attract private capital, while also investing in energy storage and smart grid technologies to modernize its power infrastructure.

▪In the United States, energy deregulation varies by state but often focuses on increasing competition in generation and retail electricity markets, reducing consumer costs, and enabling innovation through demand-side management and integration of distributed energy resources.

Finance

Financial innovations, enabled by advances in digital technologies and modernized regulatory approaches, can expand financial inclusion, enhance productivity in the financial sector, and boost economic growth. Flexible and adaptive regulation is critical to unlocking these benefits, allowing new services such as mobile payments, peer-to-peer lending, and blockchain applications to reach more consumers and businesses. By reducing outdated regulatory barriers and fostering a more innovation-friendly environment, policymakers can help ensure that capital flows more efficiently, underserved communities gain access to financial tools, and the financial system becomes more competitive and dynamic, ultimately driving broader economic prosperity.

Examples:

▪Argentina's and Brazil's fintech sector flourished thanks to light-touch regulation and interoperability. These countries also have a higher adoption rate for blockchain technology.

▪Australia implemented a Consumer Data Rights framework and regulatory sandboxes to foster open banking and reduce barriers to entry.

▪Bangladesh achieved rapid financial inclusion by authorizing telecom-linked mobile banking services such as bKash. These reforms helped broaden access to credit, especially in underserved rural areas.

Telecommunications and Digital Infrastructure

Expanding and modernizing telecommunications and digital infrastructure is essential for driving sustained economic growth, strengthening competitiveness, and ensuring that everyone can participate fully in the global digital economy. Putting digital at the center of infrastructure strategy creates jobs in the near term while delivering superior long-term benefits compared to traditional investments, boosting national security, enhancing resilience in the face of disasters, and reducing environmental impacts through smarter, more-efficient systems. High-capacity broadband networks, upgraded communications systems, and intelligent infrastructure form the backbone of innovation across sectors, enabling advanced manufacturing, telehealth, e-commerce, and digital government services.

Examples:

▪In Argentina and Brazil, the dismantling of state monopolies in telecoms catalyzed major expansions in service quality and access.

▪Bangladesh saw a parallel surge in mobile connectivity and e-commerce following market opening.

▪Colombia has introduced landmark reforms implementing a regulatory framework for open finance, becoming one of the first countries in Latin America to do so.

▪Germany promoted online pharmacy competition by removing restrictions on mail-order medicine sales.

▪Italy focused on procedural simplifications to accelerate broadband deployment.

▪Pakistan's reforms enabled rapid growth in mobile and broadband penetration through spectrum liberalization, competition-friendly licensing, and infrastructure-sharing policies.

▪In August 2025, the Philippines enacted the Open Access in Data Transmission law, reducing barriers to entry and expansion in Internet service provision, helping to open the Philippines market, boost competition, lower network rollout costs, and improve digital service quality.

The entry of new operators and increased investment in mobile broadband helped expand access across urban and rural areas alike, positioning the telecom sector as a key enabler of digital inclusion and economic modernization.

Transportation

Technological and market innovation in transportation often falters under the weight of outdated regulatory frameworks designed to shield incumbents from competition. Excessive or misaligned regulation can stifle productivity-enhancing change by focusing on preserving the status quo rather than achieving broader societal outcomes such as safety, efficiency, and consumer welfare.

To unlock these benefits, policymakers should pursue targeted, intelligent regulatory reforms that maintain public safety while reducing uncertainty. In sectors such as railroads, trucking, and commercial drones, regulators are grappling with rapid advances in automation that could deliver significant safety and efficiency gains for society.

Examples:

▪Argentina liberalized its aviation sector, allowing low-cost carriers to enter, expanding connectivity, and reducing fares.

▪Germany's opening of long-distance bus and freight markets led to rapid efficiency gains.

▪In Korea, the ride-hailing service Tada became a prominent mobility innovation case, showcasing how regulatory sandboxes enabled new business models while also revealing the pushback from entrenched taxi industry interests that ultimately led to tighter restrictions.

Both the German and Argentinean cases exhibit a similar pattern: elevated prices were imposed as a means of protecting a specific industry, rail transport in the case of Germany and bus transport in the case of Argentina. The deregulation policies shared a core objective: removing anti-competitive barriers to entry that had protected incumbents and constrained consumer choice.

Business Environment and Administrative Simplification

Several countries deployed deregulation as a means to improve the overall business environment. ITIF's "Innovation Success Triangle" envisions economic vitality as depending on the interplay of three core pillars: supportive business, regulatory, and innovation/tech policy environments.^[13] A business climate that fosters high-quality management, widespread adoption of information technologies, and access to capital; a regulatory, trade, and tax framework that ensures open markets, transparent rules, and effective intellectual property protections; and an innovation/tech policy ecosystem that invests in R&D, nurtures talent through STEM education and high-skill immigration, and catalyzes collaboration between industry, academia, and government.

The following are some of the case studies with a particular focus on reducing bureaucratic friction and enabling entrepreneurship.

Examples:

▪In Chile, the "Your Business in a Day" program streamlined company registration by digitizing and consolidating multiple procedures, cutting the average time to start a business from nearly a month to under a week. This reform significantly increased formal firm creation, especially among micro and small enterprises.

▪Costa Rica has introduced the concept of the "Revolutionary Sandbox"-an alternative to the traditional regulatory sandbox-that empowers innovative Costa Rican companies developing business model that comply with four key objectives: 1) a world class product or service; 2) a disruptive innovation; 3) scalable; and 4) the solution will be offered in the global market.

▪Ecuador has recognized that data localization policies create barriers to service innovation, especially in the fintech sectors, and has taken steps to repeal these policies.

▪India recently introduced significant regulatory reforms that unlocked private-sector innovation in the country's space and drone sectors.

▪In Italy, a series of "Simplification Decrees" reduced red tape for permits and infrastructure projects, introduced digital-by-default authorization systems, and established a fast-track regime for strategic investments for fixed and mobile networks. These measures enhanced legal certainty and reduced compliance burdens, attracting greater levels of private capital.

▪Pakistan also undertook initiatives to improve its business climate by digitizing registration services, streamlining tax procedures, and liberalizing investment rules in key sectors. These reforms contributed to its advancement in global ease-of-doing-business rankings.

▪In Poland, pro-business regulatory reforms included initiatives to enable legally valid electronic services of documents for administrative and judicial procedures.

Collectively, these examples illustrate how deregulation-when oriented toward operational efficiency and legal clarity-can lower barriers to entry, promote formalization, and foster a more dynamic private sector. Moreover, these case studies illustrate that while reform strategies must be tailored to national contexts, their underlying logic-reducing compliance costs, enhancing market contestability, and accelerating innovation-is widely shared. The diverse successes documented in this volume affirm that well-designed deregulation, grounded in transparency and competitive neutrality, remains a powerful lever for inclusive economic growth.

Full Report

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▪Visit GTIPA's website.

Endnotes