Working Paper: NBER ID: w10380
Authors: Leora Klapper; Luc Laeven; Raghuram Rajan
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.
Keywords: Entry Regulation; Entrepreneurship; Firm Creation; Market Entry; Business Environment
JEL Codes: L1; G3
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| higher entry costs (L11) | lower rates of incorporation (L49) |
| higher entry costs (L11) | larger average size of new entrants (L25) |
| higher entry costs (L11) | higher average value added by new firms (L26) |
| stringent entry regulations (Z38) | slower growth in value added per employee for incumbents (O49) |
| higher entry costs (L11) | adverse effects on competitive dynamics (L49) |
| wealthier countries with stringent entry regulations (F55) | more pronounced adverse effects of entry regulations (F69) |