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Do Entry Regulations Deter Entrepreneurship and Job Creation? Evidence from Recent Reforms in Portugal

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  • Lee G. Branstetter
  • Francisco Lima
  • Lowell J. Taylor
  • Ana Venâncio

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.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 16473.

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Date of creation: Oct 2010
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Publication status: published as Branstetter, L., Lima, F., Taylor, L., and Venancio, A., "Do Entry Regulations Deter Entrepreneurship and Job Creation? Evidence from Recent Reforms in Portugal." Forthcoming in the Economic Journal.
Handle: RePEc:nbr:nberwo:16473

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  1. Philippe Aghion & Robin Burgess & Stephen Redding & Fabrizio Zilibotti, 2007. "The Unequal Effects of Liberalization: Evidence from Dismantling the License Raj in India," IEW - Working Papers 345, Institute for Empirical Research in Economics - University of Zurich.
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  8. Ciccone, Antonio & Papaioannou, Elias, 2006. "Red Tape and Delayed Entry," CEPR Discussion Papers, C.E.P.R. Discussion Papers 5996, C.E.P.R. Discussion Papers.
  9. Richard A. Posner, 1974. "Social Costs of Monopoly and Regulation," NBER Working Papers 0055, National Bureau of Economic Research, Inc.
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Cited by:
  1. Bena Jan & Ondko Peter & Vourvachaki Evangelia, 2011. "Productivity Gains from Services Liberalization in Europe," EERC Working Paper Series 11/15e, EERC Research Network, Russia and CIS.
  2. Narula, Rajneesh & Prasad Kodiyat, Tiju, 2013. "The growth of outward FDI and the competitiveness of the underlying economy: the case of India," MERIT Working Papers 042, United Nations University - Maastricht Economic and Social Research Institute on Innovation and Technology (MERIT).
  3. World Bank & International Finance Corporation, 2013. "Doing Business 2014 : Understanding Regulations for Small and Medium-Size Enterprises," World Bank Publications, The World Bank, number 16204, August.
  4. Bruhn, Miriam & McKenzie, David, 2013. "Using administrative data to evaluate municipal reforms : an evaluation of the impact of Minas Facil Expresso," Policy Research Working Paper Series 6368, The World Bank.
  5. Miguel García-Posada & Juan S. Mora-Sanguinetti, 2014. "Entrepreneurship and enforcement institutions: Disaggregated evidence for Spain," Banco de Espa�a Working Papers 1405, Banco de Espa�a.
  6. Ana P. Fernandes & Priscila Ferreira & L. Alan Winters, 2013. "Firm Entry Deregulation, Competition and Returns to Education and Skill," NIMA Working Papers, Núcleo de Investigação em Microeconomia Aplicada (NIMA), Universidade do Minho 48, Núcleo de Investigação em Microeconomia Aplicada (NIMA), Universidade do Minho.
  7. Mercedes Delgado & Christian Ketels & Michael E. Porter & Scott Stern, 2012. "The Determinants of National Competitiveness," NBER Working Papers 18249, National Bureau of Economic Research, Inc.
  8. Ana P. Fernandes & Priscila Ferreira & L. Alan Winters, 2014. "The Effect of Competition on Managers' Compensation: Evidence From a Quasi-natural Experiment," NIMA Working Papers, Núcleo de Investigação em Microeconomia Aplicada (NIMA), Universidade do Minho 57, Núcleo de Investigação em Microeconomia Aplicada (NIMA), Universidade do Minho.

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