Working Paper: NBER ID: w16473
Authors: Lee G. Branstetter; Francisco Lima; Lowell J. Taylor; Ana Venncio
Abstract: Recent research has suggested that the reduction of entry regulation can promote firm entry and job creation, but little is known about the quality of firms and jobs created through these reforms. To shed light on this question, we employ data from Portugal, a country which implemented one of the most dramatic and thorough policies of entry deregulation in the industrialized world. The impact of these major changes can be traced with a matched employer-employee database that provides unusually rich information on the quality of founders and employees associated with the new firms. Our assessment indicates that the short term consequences of the reform were just as one would predict with a standard economic model of entrepreneurship: The reform resulted in increased firm formation and employment, but mostly among "marginal firms" that would have been most readily deterred by existing heavy entry regulations. These marginal firms were typically small, owned by relatively poorly-educated entrepreneurs, operating in the low-tech sector (agriculture, construction, and retail trade). These firms were also less likely to survive their first two years than comparable firms that entered prior to the reform. The social impact of entry deregulation may be limited by the quality of the firms it creates.
Keywords: entry regulation; entrepreneurship; job creation; Portugal; deregulation
JEL Codes: D73; K22; L26; L53
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| onestop shop program (L81) | number of new firms established (L26) |
| onestop shop program (L81) | initial employment at startups (M13) |
| onestop shop program (L81) | demographic profile of new business founders (L26) |
| onestop shop program (L81) | quality of firms created (L26) |