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Where does regulation hurt? Evidence from new businesses across countries

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  • Silvia Ardagna
  • Annamaria Lusardi
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    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.

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    Bibliographic Info

    Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 14747.

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    Date of creation: Feb 2009
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    Handle: RePEc:nbr:nberwo:14747

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    Cited by:
    1. Ant Bozkaya & William R. Kerr, 2009. "Labor Regulations and European Private Equity," NBER Working Papers 15627, National Bureau of Economic Research, Inc.
    2. Albiol, Judit, 2012. "Business Exits entail greater future levels of entrepreneurship? An empirical analysis at country level," Working Papers 2072/211754, Universitat Rovira i Virgili, Department of Economics.
    3. Fossen, Frank M. & Büttner, Tobias J. M., 2012. "The Returns to Education for Opportunity Entrepreneurs, Necessity Entrepreneurs, and Paid Employees," IZA Discussion Papers 6819, Institute for the Study of Labor (IZA).
    4. Davud Rostam-Afschar, 2010. "Entry Regulation and Entrepreneurship: Empirical Evidence from a German Natural Experiment," Discussion Papers of DIW Berlin 1065, DIW Berlin, German Institute for Economic Research.
    5. Silvia Ardagna & Annamaria Lusardi, 2009. "Heterogeneity in the effect of regulation on entrepreneurship and entry size," NBER Working Papers 15510, National Bureau of Economic Research, Inc.
    6. William R. Kerr & Ramana Nanda, 2010. "Banking Deregulations, Financing Constraints, and Firm Entry Size," Journal of the European Economic Association, MIT Press, vol. 8(2-3), pages 582-593, 04-05.

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