Research on Starting a Business

Doing Business considers the following list of papers as relevant for research on regulations affecting the entry of new firms. Some papers—denoted with an asterisk (*)—use Doing Business data for their empirical analysis. If we've missed any important research, please let us know.

  • A helping hand or the long arm of the law? Experimental evidence on what governments can do to formalize firms

    Author(s) : Gustavo Henrique de Andrade; Miriam Bruhn and David McKenzi Journal : World Bank Group, Policy Research Working Paper 6435. Abstract : Many governments have spent much of the past decade trying to extend a helping hand to informal businesses by making it easier and cheaper for them to formalize. Much less effort has been devoted to raising the costs of remaining informal, through increasing enforcement of existing regulations. This paper reports on a field experiment conducted in Belo Horizonte, Brazil, in order to test which government actions work in getting informal firms to register. Firms were randomized to a control group or one of four treatment groups

  • Barriers to entry and development

    Author(s) : Herrendorf, Berthold; Teixeira, Arilton Journal : International Economic Review, Volume 52, Issue 2, Pages 573-602, May 2011 Abstract : We ask whether barriers to entry are a quantitatively important reason for the income gap between developing countries and the United States. We develop a tractable general equilibrium model that captures the effects of barriers to entry and the other main distortions typically considered in the development literature. We carry our model to the data and ask it to match the main development facts from the Penn World Table. We find that this requires large barriers to entry in developing countries, which account for about half of the income gap with the United States.

  • Business regulations and growth

    Author(s) : Divanbeigi, Raian; Ramalho, Rita Journal : World Bank Group, Policy Research Working Paper 7299 Abstract : Over the past decade, there has been increased interest in improving business regulations, in part because of the increased availability of data that can inform and monitor those improvements. This paper analyzes whether these regulatory changes are linked to economic outcomes. With panel data for 10 years across more than 180 countries, the paper establishes the link between business regulations, firm creation, and growth. It is found that an improvement of 10 points in the overall measure of business regulations is linked to an increase of around 0.5 new businesses per 1,000 adults. Moreover, the results show that although small changes in the overall level of business regulations may have a negligible link to growth, moving from the lowest quartile of improvement in business regulations to the highest quartile is associated with a significant increase in annual per capita growth of around 0.8 percentage points. In addition, the results highlight the importance of sound entry and exit regulations and sound credit market regulations and court enforcement for growth.

  • Business start-up regulations and the complementarity between foreign and domestic investment

    Author(s) : Jonathan Munemo Journal : Review of World Economics, Volume 150, Issue 4, Pages 745-761, November 2014. Abstract : This paper shows that the complementarity between foreign direct investment (FDI) and domestic investment significantly depends on regulations required to start a new domestically owned business in host economies. It finds evidence that FDI crowds out domestic investment in countries with entry regulation cost above a certain level, and many of these countries are in the bottom quartile of GDP per capita. Reforms in business start-up regulations can therefore play a critical role in enhancing the complementarity between foreign and domestic investment and thereby increase entrepreneurship and economic growth in low-income countries. The analysis takes into account other significant factors which affect domestic investment such as the cost of capital, government's economic growth track record, institutional quality, and market size.

  • Can entrepreneurial activity be taught? Quasi-experimental evidence from Central America

    Author(s) : Klinger, Bailey; Schuendeln, Matthias Journal : World Development, Volume 39, Issue 9, Pages 1592-1610, September 2011 Abstract : Business training is a widely used development tool, yet little is known about its impact. We study the effects of such a business training program held in Central America. To deal with endogenous selection into the training program, we use a regression discontinuity design, exploiting the fact that a fixed number of applicants are taken into the training program based on a pre-training score. Business training significantly increases the probability that an applicant to the workshop starts a business or expands an existing business. Results also suggest gender heterogeneity as well as the presence of financial constraints.

  • Corruption's Asymmetric Impacts On Firm Innovation

    Author(s) : Paunov, Caroline Journal : Journal of Development Economics , Volume 118, Pages 216-231, January 2016. Abstract : This paper documents the impacts of corruption on smaller- and larger-sized firms’ adoption of quality certificates and patents. Using firm-level data for 48 developing and emerging countries, I analyze whether corruption’s impacts are stronger on firms operating in industries that use quality certificates and patents more intensively. My results show corruption reduces the likelihood that firms in these industries obtain quality certificates. Corruption affects particularly smaller firms but has no impacts on exporters or foreign- and publicly-owned firms. While corruption does not reduce patenting, it lowers machinery investments for innovation. More reliable business environments foster firms’ adoption of quality certificates.

  • Entrepreneurship policy and globalization

    Author(s) : Pehr-Johan Norbäck, Lars Persson, Robin Douhan Journal : Journal of Development Economics , Volume 110, Pages 22-38, September 2014. Abstract : What explains the world-wide trend of pro-entrepreneurial policies? We study entrepreneurial policy in the form of entry costs in a lobbying model taking into account the conflict of interest between entrepreneurs and incumbents. It is shown that international market integration leads to more pro-entrepreneurial policies, since it is then (i) more difficult to protect domestic incumbents and (ii) pro-entrepreneurial policies make foreign entrepreneurs less aggressive. Using the World Bank Doing Business database, we find evidence that international openness is negatively correlated with the barriers to entry for new entrepreneurs, as predicted by the theory.

  • Entry regulation and the formalization of microenterprises in developing countries

    Author(s) : Miriam Bruhn and David McKenzie Journal : World Bank Group, Research Observer, Volume 29, Issue 2, Pages 186-201. Abstract : The majority of microenterprises in most developing countries remain informal despite more than a decade of reforms aimed at making it easier and cheaper for them to formalize. This paper summarizes the evidence on the effects of entry reforms and related policy actions to promote firm formalization. Most of these policies result in only a modest increase in the number of formal firms, if there is any increase at all. Most informal firms appear to not benefit on net from formalizing. As a consequence, ease of formalization along will not induce most of them to become formal. Increased enforcement of rules can increase formality. Although there is a fiscal benefit of doing this with larger informal firms, it is unclear whether there is a public rationale for attempting to formalize subsistence enterprises.

  • Entry regulation as a barrier to entrepreneurship

    Author(s) : Leora Klapper, Luc Laeven and Raghuram Rajan Journal : Journal of Financial Economics, Volume 82, Issue 3, December 2006, Pages 591-629. Abstract : Using a comprehensive database of European firms, we study the effect of market entry regulations on the creation of new limited-liability firms, the average size of entrants, and the growth of incumbent firms. We find that costly regulations hamper the creation of new firms, especially in industries that should naturally have high entry. These regulations also force new entrants to be larger and cause incumbent firms in naturally high-entry industries to grow more slowly. Our results hold even when we correct for the availability of financing, the degree of protection of intellectual property, and labor regulations.

  • Exploring country-level institutional arrangements on the rate and type of entrepreneurial activity

    Author(s) : Stenholm, Pekka; Acs, Zoltan J.; Wuebker, Robert Journal : Journal of Business Venturing, Volume 28,Issue 1, Pages 176-193, January 2013 Abstract : This study introduces a novel multidimensional measure of the entrepreneurial environment that reveals how differences in institutional arrangements influence both the rate and the type of entrepreneurial activity in a country. Drawing from institutional theory, the measure examines the regulatory, normative, and cognitive dimensions of entrepreneurial activity, and introduces a novel conducive dimension that measures a country's capability to support high-impact entrepreneurship. Our findings suggest that differences in institutional arrangements are associated with variance in both the rate and type of entrepreneurial activity across countries. For the formation of innovative, high-growth new ventures, the regulative environment matters very little. For high-impact entrepreneurship an institutional environment Red with new opportunities created by knowledge spillovers and the capital necessary for high-impact entrepreneurship matter most.

  • Federal regulation and aggregate economic growth

    Author(s) : Dawson, John W.; Seater, John J. Journal : Journal of Economic Growth,Volume 18, Issue 2, Pages 137-177 , June 2013 Abstract : We introduce a new time series measure of the extent of federal regulation in the U.S. and use it to investigate the relationship between federal regulation and macroeconomic performance. We find that regulation has statistically and economically significant effects on aggregate output and the factors that produce it-total factor productivity (TFP), physical capital, and labor. Regulation has caused substantial reductions in the growth rates of both output and TFP and has had effects on the trends in capital and labor that vary over time in both sign and magnitude. Regulation also affects deviations about the trends in output and its factors of production, and the effects differ across dependent variables. Regulation changes the way output is produced by changing the mix of inputs. Changes in regulation offer a straightforward explanation for the productivity slowdown of the 1970s. Qualitatively and quantitatively, our results agree with those obtained from cross-section and panel measures of regulation using cross-country data.

  • Greasing the wheels? The impact of regulations and corruption on firm entry

    Author(s) : Dreher, Axel; Gassebner, Martin Journal : Public Choice, Volume 155, Issue 3, Pages 413-432, June 2013 Abstract : This paper investigates the question of whether corruption might 'grease the wheels' of an economy. We investigate whether and to what extent the impact of regulations on entrepreneurship is dependent on corruption. We first test whether regulations robustly deter firm entry into markets. Our results show that the existence of a larger number of procedures required to start a business, as well as larger minimum capital requirements are detrimental to entrepreneurship. Second, we test whether corruption reduces the negative impact of regulations on entrepreneurship in highly regulated economies. Our empirical analysis, covering a maximum of 43 countries over the 2003-2005 period, shows that corruption facilitates firm entry in highly regulated economies. For example, the 'greasing' effect of corruption kicks in at around 50 days required to start a new business. Our results thus provide support for the 'grease the wheels' hypothesis.

  • Institutional development, transaction costs and economic growth: evidence from a cross-country investigation

    Author(s) : A.Kovac, Mitja; Spruk, Rok Journal : Journal of Institutional Economics Abstract : This paper seeks to quantify the impact of transaction costs on cross-country economic growth. Our evidence from a cross-country panel data regression analysis reveals a persistent and robust negative effect of increasing transaction costs on the path of economic growth. The growth-enhancing effects of lower transaction costs are confirmed after controlling for the set of conditioning variables and further demonstrated in a cross-country growth model calibration. The results provide evidence that transaction costs might indeed be central to the study of cross-country productivity differences, suggest the importance of contractual relations and indicate their significant impact on cross-country economic performance over time.

  • Macro-level determinants of formal entrepreneurship versus informal entrepreneurship

    Author(s) : Mai Thi Thanh Thai Journal : Journal of Business Venturing Abstract : Based on the eclectic theory of entrepreneurship, this article analyzes macro-level determinants of national rates of formal versus informal entrepreneurship. Our evaluation of the factors identified in this theory reveals a set of empirically-testable, higher-order determinants

  • Product market regulation and market work: a benchmark analysis

    Author(s) : Fang, Lei; Rogerson, Richard Journal : American Economic Journal Abstract : Recent empirical work finds a negative correlation between product market regulation and aggregate employment. We examine the effect of product market regulations on hours worked in a benchmark model of time allocation. Product market regulations affect market work in effectively the same fashion as labor or consumption taxes. For product market regulations to affect aggregate market work, the key driving force is the size of income transfers associated with the regulations, and the key propagation mechanism is the labor supply elasticity. We show that industry level analysis is of little help in assessing the aggregate effects of product market regulation.

  • Regulation, firm dynamics and entrepreneurship

    Author(s) : Pontus Braunerhjelm, Sameeksha Desai and Johan E. Eklund Journal : European Journal of Law and Economics, August 2015, Volume 40, Issue 1, Pages 1–11 Abstract : Entrepreneurship can have important positive effects linked to job creation, wealth and income generation, innovation and industry competitiveness. Scholars and policy-makers around the world have turned to the regulatory environment as a mechanism through which entrepreneurship can be encouraged, grown and its economic benefits harnessed. The effect of regulatory conditions on entrepreneurship however is not well understood, and can be nuanced given the wide range of regulatory tools and possible areas of impact. This paper serves as the introduction to a special issue, which seeks to shed some light on the relationship between regulation, firm dynamics and entrepreneurship. We identify some foundational considerations relevant to this relationship and discuss key questions, followed by a brief overview of each of the papers contained in the special issue.

  • The Doing Business Project: How it Started

    Author(s) : Djankov, Simeon Journal : Journal of Economic Perspectives , Volume 30, Number 1, Pages 247-248, Winter 2016 Abstract : Correspondence to the Summer 2015 issue included an article by Timothy Besley on the nature and influence of the World Bank’s Doing Business report (“Law, Regulation, and the Business Climate

  • The effect of institutional quality on firm export performance in emerging economies: a contingency model of firm age and size

    Author(s) : LiPuma, Joseph A.; Newbert, Scott L.; Doh, Jonathan P. Journal : Small Business Economics, Volume 40, Issue 4, Pages 817-841 , May 2013 Abstract : It is widely accepted that countries with sound formal and informal institutions create more robust environments for firm performance. However, due to the liabilities faced by firms without available slack and/or market power, we contend that institutions are especially important for new and small firms. Unfortunately, there is little research examining the potential moderating effect of firm size or age on the relationship between institutional quality and export performance. In response, we hypothesize that institutional quality will be more important to increasing the export performance of new and small firms compared with their large, established counterparts. We test our hypotheses using data from the World Bank's World Business Environment Survey. The results of our analyses offer support for our model, although some institutional variables appear to be more important to export performance than others. We conclude by discussing the implications of our results.

  • The impact of firm entry regulation on long-living entrants

    Author(s) : Prantl, Susanne Journal : Small Business Economics, Volume 39, Issue 1, Pages 61-76, July 2012 Abstract : What is the impact of firm entry regulation on sustained entry into self-employment? How does firm entry regulation influence the performance of long-living entrants? In this paper, I address these questions, exploiting a natural experiment in firm entry regulation. After German reunification, East and West Germany faced different economic conditions, but fell under the same law that imposes a substantial mandatory standard on entrepreneurs who want to start a legally independent firm in one of the regulated occupations. The empirical results suggest that the entry regulation suppresses long-living entrants, not only entrants in general or transient, short-lived entrants. This effect on the number of long-living entrants is not accompanied by a counteracting effect on the performance of long-living entrants, as measured by firm size several years after entry.

  • The regulation of entry: a survey

    Author(s) : Djankov Simeon Journal : World Bank Research Observer, Volume 24, Issue 2, Pages 183-203, August 2009 Abstract : Simplifying entry regulation has been a popular reform since the publication of Djankov and others (2002). The inclusion of business entry indicators in the World Bank's Doing Business project has led to an acceleration in reform

  • Varieties of entrepreneurship: institutional drivers across entrepreneurial activity and country

    Author(s) : Farzana Chowdhury, Siri Terjesen, David Audretsch Journal : European Journal of Law and Economics, 2015, Volume 40, Issue 1, Pages 1-148. Abstract : This paper adapts the approach introduced in the literature on disparate varieties of capitalism by proposing that different varieties of entrepreneurship exist. We make the case for the existence of disparate varieties of entrepreneurship by exploring and analyzing three distinct varieties of entrepreneurship that are prevalent but typically analyzed separately in the entrepreneurship literature

  • A structural econometric analysis of the informal sector heterogeneity

    Author(s) : Pierre Nguimkeu Journal : Journal of Development Economics, Volume 107, Pages 175-191, March 2014. Abstract : Understanding the informal sector that represents about 60-90% of urban employment in developing countries has a significant importance for any strategy and policy interventions aiming to alleviate poverty and improve welfare. I formulate and estimate a model of entrepreneurial choice to address the heterogeneity in occupations and earnings observed within the informal sector. I test the implications of the model with reduced form and nonparametric techniques, and use a structural econometric approach to empirically identify occupational patterns and earnings using data from the Cameroon informal sector. The empirical validity of the structural estimates is tested and the estimated model is used in counterfactual policy simulations to show how microfinance and business training programs can strengthen the efficiency of the informal sector and substantially improve its earning potential.

  • Benefits of a registration policy for microenterprise performance in India

    Author(s) : Smriti Sharma Journal : Small Business Economics, Volume 42, Issue 1, Pages 153-164, January 2014. Abstract : This paper evaluates the effects of a voluntary registration policy with government authorities on financial performance of urban microenterprises in the Indian manufacturing sector. Using data from the 2006 World Bank survey of Indian microenterprises and applying the semi-parametric propensity score matching technique, we find that being registered leads to significant gains in sales per employee and value added per employee. Large gains are also noted for male-owned firms, those operating with or without paid labor and those operating outside of the owner's home.

  • Coming out of the shadows? Estimating the impact of bureaucracy simplification and tax cut on formality in Brazilian microenterprises

    Author(s) : Monteiro, Joana C. M.; Assuncao, Juliano J. Journal : Journal of Development Economics, Volume 99, Issue 1, Pages 105-115, September 2012 Abstract : This paper evaluates the impact of a program of bureaucracy simplification and tax reduction on formality among Brazilian microenterprises - the SIMPLES program. We document an increase of 13 percentage points in formal licensing among retail firms created after the program when compared to firms in ineligible sectors. The impact on retailers is robust to a series of tests. We find no impact on construction, transportation, services and manufacturing sectors.