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Firing Regulations and Firm Size in the Developing World: Evidence from Differential Enforcement

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  • Rita K. Almeida
  • Z. Bilgen Susanlı

Abstract

This paper examines how stringent de facto firing regulations affect firm size throughout the developing world. We exploit a large firm level dataset across 63 countries and within country variation in the enforcement of the labor codes in countries with very different de jure firing regulations. Our findings strongly suggest that firms facing a stricter enforcement of firing regulations are on average smaller. We interpret this finding as supportive of the fact that more stringent de facto firing regulations tend to reduce average employment. We also find robust evidence that this effect is stronger for more labor intensive manufacturing firms, especially those operating in low-technology sectors. Evidence also shows that this negative correlation does not hold in countries with a very weak rule of law.

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Bibliographic Info

Article provided by Wiley Blackwell in its journal Review of Development Economics.

Volume (Year): 16 (2012)
Issue (Month): 4 (November)
Pages: 540-558

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Handle: RePEc:bla:rdevec:v:16:y:2012:i:4:p:540-558

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References

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  1. Alejandro Micco & Carmen Pagés-Serra, 2004. "Employment Protection and Gross Job Flows: A Differences-in-Differences Approach," Research Department Publications 4365, Inter-American Development Bank, Research Department.
  2. Schivardi, Fabiano & Torrini, Roberto, 2008. "Identifying the effects of firing restrictions through size-contingent differences in regulation," Labour Economics, Elsevier, vol. 15(3), pages 482-511, June.
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  8. Reyes Aterido & Mary Hallward-Driemeier & Carmen Pagés-Serra, 2007. "Investment Climate and Employment Growth: The Impact of Access to Finance, Corruption and Regulations across Firms," IDB Publications 43618, Inter-American Development Bank.
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  10. Boeri, Tito & Helppie, Brooke & Macis, Mario, 2008. "Labor regulations in developing countries : a review of the evidence and directions for future research," Social Protection Discussion Papers 46306, The World Bank.
  11. Beata Smarzynska Javorcik & Mariana Spatareanu, 2005. "Do Foreign Investors Care about Labor Market Regulations?," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 141(3), pages 375-403, October.
  12. Almeida, Rita K. & Carneiro, Pedro, 2007. "Inequality and Employment in a Dual Economy: Enforcement of Labor Regulation in Brazil," IZA Discussion Papers 3094, Institute for the Study of Labor (IZA).
  13. Krishna B. Kumar & Raghuram G. Rajan & Luigi Zingales, 1999. "What Determines Firm Size?," NBER Working Papers 7208, National Bureau of Economic Research, Inc.
  14. Parisi, Maria Laura & Schiantarelli, Fabio & Sembenelli, Alessandro, 2006. "Productivity, innovation and R&D: Micro evidence for Italy," European Economic Review, Elsevier, vol. 50(8), pages 2037-2061, November.
  15. Abidoye, Babatunde & Orazem, Peter F. & Vodopivec, Milan, 2009. "Firing cost and firm size : a study of Sri Lanka's severance pay system," Social Protection Discussion Papers 50671, The World Bank.
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Cited by:
  1. Anagnostopoulos, Achilleas & Siebert, W. Stanley, 2012. "The Impact of Greek Labour Market Regulation on Temporary and Family Employment: Evidence from a New Survey," IZA Discussion Papers 6504, Institute for the Study of Labor (IZA).
  2. Gindling, T. H. & Mossaad, Nadwa & Trejos, Juan Diego, 2014. "The Consequences of Increased Enforcement of Legal Minimum Wages in a Developing Country: An Evaluation of the Impact of the Campaña Nacional de Salarios Mínimos in Costa Rica," IZA Discussion Papers 8253, Institute for the Study of Labor (IZA).

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