Based on international industry data between 1975 and 2007, this paper studies the production effects of upstream (service) regulation considering two different mechanisms of transmission: the productivity channel and the factor demand channel. The analysis shows that the effects of anti-competition barriers in service markets transmit to the rest of the economy varying with the technology conditions of downstream firms. Upstream regulation is found to lower productivity directly – mainly reducing efficiency levels in network industries – and indirectly by curbing the demand for labour – mainly in the manufacturing sector. However, we show that downstream firms react to high anti-competition barriers in intermediate input (service) markets by investing more intensively in ICT capital goods, probably to produce intangible tasks internally. The aggregate effects of service regulation are quantitatively important and can help explain the wide productivity differentials existing across OECD countries.