Business Environment and Firm Entry: Evidence from International Data, Issue 10380
National Bureau of Economic Research, 2004 - New business enterprises - 59 pages
Using a comprehensive database of firms in Western and Eastern Europe, we study how the business environment in a country drives the creation of new firms. Our focus is on regulations governing entry. We find entry regulations hamper entry, especially in industries that naturally should have high entry. Also, value added per employee in naturally "high entry" industries grows more slowly in countries with onerous regulations on entry. Interestingly, regulatory entry barriers have no adverse effect on entry in corrupt countries, only in less corrupt ones. Taken together, the evidence suggests bureaucratic entry regulations are neither benign nor welfare improving. However, not all regulations inhibit entry. In particular, regulations that enhance the enforcement of intellectual property rights or those that lead to a better developed financial sector do lead to greater entry in industries that do more R&D or industries that need more external finance.
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2-digit NACE code 2-digit NACE industries 250 employees 4-digit SIC level Amadeus database Andrei Shleifer average Calculated for 2-digit capita GNP CECE industry code code and country coefficient estimate Compustat compute this measure corporations corrupt countries coverage cross-country Czech Republic dependent variable Djankov effect employees in Amadeus EntCost entry barriers entry rates entry regulation Entryus Eurostat exclude exit rates ExtFin February 2004 February financial development firm creation firms with age incumbent firms industries original data Industry Share instrumental variable interaction of industry-level interaction variables Lablnt labor regulations Latvia legal origin level variable limited liability companies low entry Luigi Zingales Manufacture months NACE industries original national statistics naturally high entry number of firms percentage private limited companies Public limited companies R&D intensive Rajan and Zingales Romania sample sector shows Tobit small firms Tobit regression total assets total firms total number transition countries U.S. firms value added Yes Yes Yes