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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. Axel Dreher & Martin Gassebner, 2007. "Greasing the Wheels of Entrepreneurship? The Impact of Regulations and Corruption on Firm Entry," CESifo Working Paper Series 2013, CESifo Group Munich.
  2. Uwe Dulleck & Paul Frijters & Rudolf Winter-Ebmer, 2003. "Reducing start-up costs for New Firms: The double dividend on the labor market," Economics working papers 2003-13, Department of Economics, Johannes Kepler University Linz, Austria.
  3. Zilibotti, Fabrizio & Redding, Stephen & Burgess, Robin & Aghion, Philippe, 2008. "The Unequal Effects of Liberalization: Evidence from Dismantling the License Raj in India," Scholarly Articles 4554127, Harvard University Department of Economics.
  4. Alberto Alesina & Silvia Ardagna & Giuseppe Nicoletti & Fabio Schiantarelli, 2005. "Regulation And Investment," Journal of the European Economic Association, MIT Press, vol. 3(4), pages 791-825, 06.
  5. Ciccone, Antonio & Papaioannou, Elias, 2007. "Red tape and delayed entry," Working Paper Series 0758, European Central Bank.
  6. Peltzman, Sam, 1976. "Toward a More General Theory of Regulation," Journal of Law and Economics, University of Chicago Press, vol. 19(2), pages 211-40, August.
  7. Yakovlev, Evgeny & Zhuravskaya, Ekaterina, 2007. "Deregulation of Business," CEPR Discussion Papers 6610, C.E.P.R. Discussion Papers.
  8. Richard A. Posner, 1974. "Social Costs of Monopoly and Regulation," NBER Working Papers 0055, National Bureau of Economic Research, Inc.
  9. Susanne Prantl & Alexandra Spitz-Oener, 2009. "How does entry regulation influence entry into self-employment and occupational mobility?," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 17(4), pages 769-802, October.
  10. Levon Barseghyan, 2008. "Entry costs and cross-country differences in productivity and output," Journal of Economic Growth, Springer, vol. 13(2), pages 145-167, June.
  11. Miriam Bruhn, 2011. "License to Sell: The Effect of Business Registration Reform on Entrepreneurial Activity in Mexico," The Review of Economics and Statistics, MIT Press, vol. 93(1), pages 382-386, February.
  12. Klapper, Leora & Laeven, Luc & Rajan, Raghuram, 2006. "Entry regulation as a barrier to entrepreneurship," Journal of Financial Economics, Elsevier, vol. 82(3), pages 591-629, December.
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Cited by:
  1. 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.
  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. Ana P. Fernandes & Priscila Ferreira & L. Alan Winters, 2013. "Firm Entry Deregulation, Competition and Returns to Education and Skill," NIMA Working Papers 48, Núcleo de Investigação em Microeconomia Aplicada (NIMA), Universidade do Minho.
  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. 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.
  6. 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.

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