Working Paper: CEPR ID: DP7752
Authors: Robin Douhan; Pehr-Johan Norbck; Lars Persson
Abstract: What explains the world-wide trend of pro-entrepreneurial policies? We study entrepreneurial policy 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. It is then more difficult to protect the profits of incumbents from entrepreneurial entry and pro-entrepreneurial policies make foreign entrepreneurs less aggressive. Using the World Bank Doing Business database, we find evidence that international openness reduces barriers to entry for new entrepreneurs and that the effect is stronger in countries with more rent-seeking governments.
Keywords: Entrepreneurship; Innovation; Lobbying; Market Integration; Regulation
JEL Codes: D73; F15; L26; L51; O31
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| foreign innovation threat effect (F23) | reduction in lobbying power of incumbents (D72) |
| foreign innovation threat effect (F23) | pro-entrepreneurial policies (L53) |
| strategic innovation effort effect (O35) | innovation by domestic entrepreneurs (O35) |
| innovation by domestic entrepreneurs (O35) | pro-entrepreneurial policies (L53) |
| barriers to entry for new firms (L11) | entrepreneurial activity (L26) |
| increased market concentration due to mergers (L12) | lobbying power of incumbents (D72) |
| international integration (F02) | antientrepreneurial pressures (P12) |
| international market integration (F30) | pro-entrepreneurial policies (L53) |
| international market integration (F30) | barriers to entry for new firms (L11) |