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Greasing the Wheels of Entrepreneurship? The Impact of Regulations and Corruption on Firm Entry

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Author Info
Axel Dreher ()
Martin Gassebner ()

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Abstract

The paper investigates whether the impact of regulations on entrepreneurship depends on corruption. We first test whether regulations robustly deter firm entry into the markets. Our results show that some regulations are indeed important determinants of entrepreneurial activity. Specifically, more procedures required to start a business and larger minimum capital requirements are detrimental to entrepreneurship. Second, we test whether corruption reduces the negative impact of regulations on entrepreneurship in highly regulated economies. Our empirical analysis for a maximum of 43 countries over the period 2003-2005 shows that corruption is beneficial in highly regulated economies. At the maximum level of regulation among our sample of countries, corruption significantly increases entrepreneurial activity. Our results thus provide support for the ‘grease the wheels’ hypothesis.

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Publisher Info
Paper provided by CESifo GmbH in its series CESifo Working Paper Series with number CESifo Working Paper No. 2013.

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Date of creation: 2007
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Handle: RePEc:ces:ceswps:_2013

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Related research
Keywords: corruption start-ups grease the wheels entrepreneurship regulation doing business

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Find related papers by JEL classification:
D73 - Microeconomics - - Analysis of Collective Decision-Making - - - Bureaucracy; Administrative Processes in Public Organizations; Corruption
F59 - International Economics - - International Relations and International Political Economy - - - Other
L26 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Entrepreneurship
M13 - Business Administration and Business Economics; Marketing; Accounting - - Business Administration - - - New Firms; Startups

References listed on IDEAS
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