I don't see any reason to believe that somehow government regulation is needed for an international market to expand.
They realized in 1947 in order for the aviation to grow internationally it would require an international regulatory standard accepted by all members you chose to join. The result was ICAO.
For example, there is not or ever has been, a single aviation entity that could afford to pay for certification in every country it chose to market their aircraft, engine, or any other similar item. For more info, read up on the 1947 Chicago Convention and creation of ICAO.
And since those early days, there have been additional bi-lateral aviation agreements that build on ICAO agreement between various countries. For example, the US is signatory to numerous bi-lateral agreements, each specific to the tasks and countries.
Without those agreements aircraft/part sales would be very limited to where they could operate/sell outside their native country which is still seen today for those countries who are not ICAO members or do not follow those international standards. For example, Russian and Chinese built aircraft are limited where they can operate or be sold.
Another example is the reason the TCCA owner maintained aircraft can never leave Canada. Those aircraft no longer meet the ICAO standard.
If there is an actual need, market forces will create a solution.
Except regulations are needed to keep a level playing field and keep people honest. Unfortunately, even today with the current regulatory system certain people prefer to not follow the rules for purely financial gains resulting in unsafe situations, aircraft damage, and even death.
In my experience, regulations "guard" the industry and give a mechanism to slam those who believe regulations do not apply to them for whatever reason. No market based system could come close.
The problem with safety regulation and torts is that it essentially creates a system
Problem is tort and regulation are completely separate and have no common ground. There are a number of legal records out there where not a single regulation was violated yet a plaintiff still won a tort judgement.