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Entry regulation and intersectoral reallocation

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  • Antonio Ciccone

    ()

  • Elias Papaioannou

Abstract

We study how restrictions on firm entry affect intersectoral factor reallocation when open economies experience global economic shocks. In our theoretical framework, countries trade freely in a range of differentiated sectors that are subject to country-specific and global shocks. Entry restrictions are modeled as an upper bound on the introduction of new differentiated goods following shocks. Prices and quantities adjust to clear international goods markets, and wages adjust to clear national labor markets. We show that in general equilibrium, countries with tighter entry restrictions see less factor reallocation compared to the frictionless benchmark. In our empirical work, we compare sectoral employment reallocation across countries in the 1980s and 1990s with proxies for frictionless benchmark reallocation. Our results indicate that the gap between actual and frictionless reallocation is greater in countries where it takes longer to start a firm.

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Bibliographic Info

Paper provided by Department of Economics and Business, Universitat Pompeu Fabra in its series Economics Working Papers with number 1353.

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Date of creation: Jun 2008
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Handle: RePEc:upf:upfgen:1353

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Web page: http://www.econ.upf.edu/

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  1. Les infrastructures d’innovation et croissance économique en Afrique
    by jm26121978@gmail.com (Jihène Malek) in BS Initiative on 2014-07-02 06:05:09
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Cited by:
  1. Da Rin, M. & Di Giacomo, M. & Sembenelli, A., 2008. "Firm Entry Dynamics and Taxation of Corporate Profits: Evidence from Europe (Replaced by DP 2009-61)," Discussion Paper 2008-65, Tilburg University, Center for Economic Research.

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