Working Paper: NBER ID: w14747
Authors: Silvia Ardagna; Annamaria Lusardi
Abstract: We use two micro data sets that collect harmonized data across countries to investigate the effects of regulation on new businesses. We are able to distinguish between two types of entrepreneurs: those who start a business to pursue a business opportunity and those who start a business because they could not find better work. Irrespective of the measure of regulation we use, we always find a detrimental effect of regulation on entrepreneurship. While women are overall less likely to start new businesses, in more regulated countries women are pulled into entrepreneurship not to pursue a business opportunity but because they could not find better work. Moreover, regulation dampens the effects of self-assessed business skills and social networks. In more regulated economies, those with better business skills and those who know other entrepreneurs are less likely to become entrepreneurs to pursue a business opportunity. Tighter regulation also exacerbates fear of failure, further discouraging business start-up. All our estimates point to a negative effect of regulation.
Keywords: Regulation; Entrepreneurship; Opportunity Entrepreneurs; Necessity Entrepreneurs
JEL Codes: E0
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Tighter regulation (G18) | Likelihood of starting a business (M13) |
| Tighter regulation (G18) | Likelihood of starting a business for opportunity entrepreneurs (L26) |
| Higher regulation (G18) | Necessity entrepreneurship for women and unemployed individuals (L26) |
| Regulation (L51) | Fear of failure (D81) |
| Regulation (L51) | Entrepreneurship for individuals with business skills and social networks (L26) |
| Education and social networks (I24) | Entrepreneurship (M13) |
| Regulation (L51) | Effects of education and social networks on entrepreneurship (L26) |