Does Entry Regulation Hinder Job Creation? Evidence from the French Retail Industry
Author(s):
Marianne Bertrand and Francis Kramarz
Journal:
Quarterly Journal of Economics 117 (4): 1369–413, 2002
Abstract:
Are product market and entry regulation key sources of low employment growth in many European countries? We investigate this question in the context of the French retail trade industry. Since 1974, approval by regional zoning boards has been required for the creation or extension of any large retain store in France. We exploit a unique database that provides time- and region-specific variation in boards' approval decisions. We show that stronger deterrence of entry by the boards increased retailer concentration and slowed down employment growth in France.
Entrepreneurship, Start-Up Costs and Employment
Author(s):
Raquel Fonseca, Paloma Lopez-Garcia and Christopher Pissarides
Journal:
European Economic Review 45 (4–6): 692–705, 2001
Abstract:
We study the effects of business start-up costs on employment, in a model with managers, workers and matching. We show that higher start-up costs discourage entrepreneurs and increase the fraction of the population who become workers. Job creation suffers and employment settles at a lower level. We illustrate with evidence from major OECD economies, where large variations in start-up costs are correlated with large variations in employment levels.
Entry Costs and Cross-Country Differences in Productivity and Output*
Author(s):
Levon Barseghyan
Journal:
Journal of Economic Growth, 13:145–167, 2008
Abstract:
This paper contributes to the literature on cross-country income differences by studying the effect of entry barriers on productivity and output. Using instrumental variable regressions I show that higher entry costs significantly reduce output per worker and that they do so by lowering total factor productivity. In particular, an increase in entry costs by 80% of income per capita, which is one half of their standard deviation in my sample, is estimated to decrease total factor productivity and output per worker by 22% and 29%, respectively.
Entry Regulation as a Barrier to Entrepreneurship*
Author(s):
Leora Klapper, Luc Laeven and Raghuram Rajan
Journal:
Journal of Financial Economics 82 (3):591-629, 2006
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.
Explaining International Differences in Entrepreneurship: The Role of Individual Characteristics and Regulatory Constraints*
Author(s):
Silvia Ardagna and Annamaria Lusardi
Journal:
Harvard University; Dartmouth College, Harvard Business School and NBER, 2008
Abstract:
We use a micro dataset that collects information across individuals, countries, and time to investigate the determinants of entrepreneurial activity in thirty-seven developed and developing nations. We focus both on individual characteristics and on countries’ regulatory differences. We show that individual characteristics, such as gender, age, and status in the workforce are important determinants of entrepreneurship, and we also highlight the relevance of social networks, self-assessed skills, and attitudes toward risk. Moreover, we find that regulation plays a critical role, particularly for those individuals who become entrepreneurs to pursue a business opportunity. The individual characteristics that are impacted most by regulation are those measuring working status, social network, business skills, and attitudes toward risk.
Financing, Regulatory Costs and Entrepreneurial Propensity*
Author(s):
Yuen-Ping Ho and Poh-Kam Wong
Journal:
Small Business Economics 28(2-3): 187–204, 2007
Abstract:
In this paper, we compared the availability of different types of financing sources to address the issue of capital availability to entrepreneurial propensity and we scrutinise the influence of business costs by utilising a new composite index using data from the World Bank’s Doing Business Database. The availability of three types of financing sources was analysed: traditional debt financing, venture capital financing, and informal investments. The study’s findings show that only informal investments have statistically significant influence on entrepreneurial propensity. Regulatory business costs were found to deter opportunity driven entrepreneurship, but had no impact on necessity entrepreneurship. Data on Business Cost are obtained from the World Bank Doing Business Database (World Bank, 2004), constructed using the methodology developed by Djankov et al. (2002). The World Bank database provides details on four measures of regulatory business costs for starting new businesses: number of procedures to start a business, number of days to start a business, cost of starting a business and minimum paid up capital required to register a business. The monetary cost measures are standardised as percentages of per capita income in order to be comparable across countries.
Heterogeneity in the effect of regulation on entrepreneurship and entry size
Author(s):
Ardagna Silvia, Lusardi Annamaria
Journal:
Journal of the European Economic Association
Abstract:
We use a micro dataset that collects information across individuals, countries, and time to investigate the determinants of entrepreneurial activity in thirty-seven developed and developing nations. We focus both on individual characteristics and on countries’ regulatory differences. We show that individual characteristics, such as gender, age, and status in the workforce are important determinants of entrepreneurship, and we also highlight the relevance of social networks, self-assessed skills, and attitudes toward risk. Moreover, we find that regulation plays a critical role, particularly for those individuals who become entrepreneurs to pursue a business opportunity. The individual characteristics that are impacted most by regulation are those measuring working status, social network, business skills, and attitudes toward risk.
Identifying the Aggregate Productivity Effects of Entry and Size Restrictions: An Empirical Analysis of License Reform in India
Author(s):
A. V. Chari
Journal:
American Economic Journal: Economic Policy 3 (May 2011): 66–96
Abstract:
Distortions in the allocation of resources between heterogeneous producers have the potential to generate large reductions in aggregate productivity, a point that has been stressed by recent studies. There is, however, little direct empirical evidence from actual policy experiments on the magnitude of these effects. This paper proposes a simple methodology that empirically identifies the separate effects of entry and size restrictions on aggregate productivity, and uses it to analyse the impact of a policy reform in India. (JEL L11, L24, O14, O47)
Optimality of Entry Regulation under Incomplete Information
Author(s):
Kim Jaehong
Journal:
Hitotsubashi Journal of Economics, vol.51, Issue 2, Pages 99-113
Abstract:
The lack of complete information of the government has been considered as a barrier to the optimal regulation, as it is well-known in price regulations literature. However, it is not true for the entry regulation: This paper shows that the performance of the entry regulation under incomplete information can be better than that under complete information. Under incomplete information, the incumbent firm would deviate from the monopoly behavior to signal itself as an efficient type and to trigger entry regulation which prevents excess entry in case that the incumbent is efficient. As a result, social welfare can be even higher than under complete information, since not only the optimal post-entry market structure is achieved as under complete information but the pre-entry price is even lower than that under complete information.
Red Tape and Delayed Entry*
Author(s):
Antonio Ciccone and Elias Papaioannou
Journal:
Journal of the European Economic Association 5 (2–3): 444–58, 2007
Abstract:
Does cutting red tape foster entrepreneurship in industries with the potential to expand? We address this question by combining the time needed to comply with government entry procedures in 45 countries with industry-level data on employment growth and growth in the number of establishments during the 1980s. Our main empirical finding is that countries where it takes less time to register new businesses have seen more entry in industries that experienced expansionary global demand and technology shifts. Our estimates take into account that proxying global industry shifts using data from only one country—or group of countries with similar entry regulations—will in general yield biased results.
Regulation and Growth*
Author(s):
Siemon Djankov, Caralee McLiesh and Rita Ramalho
Journal:
Economics Letters 92 (3): 395–401, 2006
Abstract:
Using objective measures of business regulations in 135 countries, we establish that countries with better regulations grow faster. Improving from the worst quartile of business regulations to the best implies a 2.3 percentage point increase in annual growth.
Regulation and Productivity Performance
Author(s):
Nicholas Crafts
Journal:
Oxford Review of Economic Policy 22(2), 186–202, 2006
Abstract:
The paper reviews theory and evidence on the ways in which regulation affects productivity outcomes. In a context of endogenous growth, it is argued that traditional measures of compliance costs miss the potentially most important impacts of regulation on productivity which occur through changes in incentives to invest and to innovate. Recent attempts to measure cross-country variations in the strength of product-market and employment regulation are considered and some weaknesses are highlighted. Nevertheless, consistent with endogenous growth models, there appears to be quite strong evidence that regulations which inhibit entry into product markets have an adverse effect on TFP growth in OECD countries. Although there are some discrepancies in the evidence, on most measures the UK appears lightly regulated relative to France and Germany, and this may have contributed to a reduction in the recent past in the UK's TFP gap.
Small and Medium Enterprises Across the Globe
Author(s):
Meghana Ayyagari, Thorsten Beck and Asli Demirguc-Kunt
Journal:
Small Business Economics 29(4): 415-434, 2007
Abstract:
This paper analyzes the relationship between the relative size of the small and medium enterprise (SME) Sector and the business environment in 76 countries. The paper first describes a new and unique cross-country database that presents consistent and comparable information on the contribution of the SME sector to total employment in manufacturing and GDP across different countries. We then relate the importance of SMEs and the informal economy to indicators of different dimensions of the business environment. We find that several dimensions of the business environment, such as lower costs of entry and better credit information sharing are associated with a larger size of the SME sector, while higher exit costs are associated with a larger informal economy.
Start-Up Costs, Limited Enforcement and the Hidden Economy*
Author(s):
Antonio Antunes and Tiago Cavalcanti
Journal:
Review of Economics and Statistics 91(1): 20-32, 2009
Abstract:
This paper examines how much of the difference in the size of the informal sector and in per capita income across countries can be accounted by regulation costs and enforcement of financial contracts. It constructs and solves numerically a general equilibrium model with credit constrained heterogeneous agents, occupational choices over formal and informal businesses, financial frictions and a government sector which imposes taxes and regulations on formal firms. The benefit from formalization is better access to outside finance. The quantitative exercises suggest that: (i) regulation costs and not the level of enforcement account for differences in the size of the informal sector between United States and Mediterranean Europe; (ii) for a developing country like Peru, however, contract enforcement and regulation costs are equally important in accounting for the size of the informal sector; and (iii) regulation costs and contract enforcement do not account for most of the income differences observed among countries.
Does Entry Regulation Hinder Job Creation? Evidence from the French Retail Industry
Author(s):
Marianne Bertrand and Francis Kramarz
Journal:
Quarterly Journal of Economics 117 (4): 1369–413, 2002
Abstract:
Are product market and entry regulation key sources of low employment growth in many European countries? We investigate this question in the context of the French retail trade industry. Since 1974, approval by regional zoning boards has been required for the creation or extension of any large retain store in France. We exploit a unique database that provides time- and region-specific variation in boards' approval decisions. We show that stronger deterrence of entry by the boards increased retailer concentration and slowed down employment growth in France.
The Effects of Entry on Incumbent Innovation and Productivity
Author(s):
Philippe Aghion, Richard Blundell, Rachel Griffith, Peter Howitt and Susanne Prantl
Journal:
Review of Economics and Statistics 91(1): 20-32, 2009
Abstract:
How does firm entry affect innovation incentives and productivity growth in incumbent firms? Micro-data suggests that there is heterogeneity across industries—incumbents in technologically advanced industries react positively to foreign firm entry, but not in laggard industries. To explain this pattern, we introduce entry into a Schumpeterian growth model with multiple sectors which differ by their distance to the technological frontier. We show that technologically advanced entry threat spurs innovation incentives in sectors close to the technological frontier—successful innovation allows incumbents to prevent entry. In laggard sectors it discourages innovation—increased entry threat reduces incumbents' expected rents from innovating. We find that the empirical patterns hold using rich micro-level productivity growth and patent panel data for the UK, and controlling for the endogeneity of entry by exploiting the large number of policy reforms undertaken during the Thatcher era.
The Regulation of Entry*
Author(s):
Simeon Djankov, Rafael La Porta, Florencio Lopez-de-Silanes and Andrei Shleifer
Journal:
Quarterly Journal of Economics 117(1): 1–37, 2002
Abstract:
We present new data on the regulation of entry of start-up firms in 85 countries. The data cover the number of procedures, official time, and official cost that a start-up must bear before it can operate legally. The official costs of entry are extremely high in most countries. Countries with heavier regulation of entry have higher corruption and larger unofficial economies, but not better quality of public or private goods. Countries with more democratic and limited governments have lighter regulation of entry. The evidence is inconsistent with public interest theories of regulation, but supports the public choice view that entry regulation benefits politicians and bureaucrats.
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: in 2003-08, 193 reforms took place in 116 countries. A large academic literature has followed: 201 academic articles have used the data compiled by Djankov and others (2002) and subsequently by the World Bank. The author identifies three theories as to why some countries impose burdensome entry requirements. He also surveys the literature on the effects of making business entry easier.
The Regulation of Entry and Aggregate Productivity
Author(s):
Poschke Markus
Journal:
The Economic Journal, vol120, Issue:549 pg:1175 -1200, 2010
Abstract:
Euro area economies have lower total factor and labour productivity than the US. I argue that
differences in entry cost contribute to this by affecting firms technology choice. Introducing technology choice into a standard heterogeneous-firm model, small differences in administrative entry cost can explain around one third of TFP differences. The productivity difference arises because entry costs reduce competition and the incentive to adopt more advanced technologies. Firm heterogeneity, technology choice and the competition channel all contribute to strengthening
results compared to previous studies. The effects of entry costs are even larger when the labour
market is not competitive
Trade, regulations, and income*
Author(s):
Caroline Freund and Bineswaree Bolaky
Journal:
Journal of Development Economics 87(2): 309-321, 2008
Abstract:
We examine the relationship between openness and per-capita income using cross-country data from 126 countries. We find that trade leads to a higher standard of living in flexible economies, but not in rigid economies. Business regulation, especially on firm entry, is more important than financial development, higher education, or rule of law as a complementary policy to trade liberalization. Specifically, after controlling for the standard determinants of per-capita income, our results imply that a 1% increase in trade is associated with more than a one-half percent rise in per-capita income in economies that facilitate firm entry, but has no positive income effects in more rigid economies. The findings are consistent with Schumpeterian “creative destruction”, which highlights the importance of new business entry in economic performance, and with previous firm-level studies showing that the beneficial effects of trade liberalization come largely from an intra-sectoral reallocation of resources.
What Causes Firms to Hide Output? The Determinants of Informality*
Author(s):
Era Dabla-Norris, Mark Gradstein and Gabriela Inchauste
Journal:
Journal of Development Economics 85 (1): 1–27, 2008
Abstract:
In many developing countries, a significant part of economic activity takes place in the informal sector. Earlier work has examined the determinants of the size of the informal sector, focusing separately on factors such as tax and regulation burden, financial market development, and the quality of the legal system. We revisit this issue by using an integrated data set which contains information on all these aspects. Building on a simple analytical framework, we test the channels affecting the degree of informality. We find that the quality of the legal framework is crucially important in determining the size of the informal sector, whereas the significance of taxes, regulations, and financial constraints is reduced in the context of a well functioning legal system, consistent with the presented model. Additionally, firm size is negatively correlated with the propensity to go informal; finance constraints tend to induce informality among smaller firms but not among large firms, whereas legal obstacles induce informality among larger firms.