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The Regulation of Entry and Aggregate Productivity

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  • Markus Poschke

Abstract

Euro area economies have lower total factor and labour productivity than the US. I argue that differences in entry cost contribute to this by affecting firms' technology choice. Introducing technology choice into a standard heterogeneous-firm model, small differences in administrative entry cost can explain around one third of TFP differences. The productivity difference arises because entry costs reduce competition and the incentive to adopt more advanced technologies. Firm heterogeneity, technology choice and the competition channel all contribute to strengthening results compared to previous studies. The effects of entry costs are even larger when the labour market is not competitive. Copyright (C) The Author(s). Journal compilation (C) Royal Economic Society 2010.

Suggested Citation

  • Markus Poschke, 2010. "The Regulation of Entry and Aggregate Productivity," Economic Journal, Royal Economic Society, vol. 120(549), pages 1175-1200, December.
    • Handle: RePEc:ecj:econjl:v:120:y:2010:i:549:p:1175-1200
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    Cited by:

    1. Conti, Maurizio & Sulis, Giovanni, 2016. "Human capital, employment protection and growth in Europe," Journal of Comparative Economics, Elsevier, vol. 44(2), pages 213-230.
    2. Lorenzo Cappellari & Carlo Dell’Aringa & Marco Leonardi, 2012. "Temporary Employment, Job Flows and Productivity: A Tale of Two Reforms," Economic Journal, Royal Economic Society, vol. 122(562), pages 188-215, August.
    3. del Río, Fernando, 2018. "Governance, social infrastructure and productivity," MPRA Paper 86245, University Library of Munich, Germany, revised 16 Apr 2018.
    4. Kalyvas, Antonios Nikolaos & Mamatzakis, Emmanuel, 2014. "Does business regulation matter for banks in the European Union?," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 32(C), pages 278-324.
    5. Janiak, Alexandre, 2013. "Structural unemployment and the costs of firm entry and exit," Labour Economics, Elsevier, vol. 23(C), pages 1-19.
    6. Pavol Majher, 2015. "Firm entry and exit, investment irreversibility, and business cycle dynamics," Vienna Economics Papers 1513, University of Vienna, Department of Economics.
    7. Silberberger, Magdalene & Königer, Jens, 2016. "Regulation, trade and economic growth," Economic Systems, Elsevier, vol. 40(2), pages 308-322.
    8. Bento, Pedro, 2014. "Niche firms, mass markets, and income across countries: Accounting for the impact of entry costs," Journal of Economic Dynamics and Control, Elsevier, vol. 48(C), pages 147-158.
    9. Raphael Bergoeing & Norman V. Loayza & Facundo Piguillem, 2011. "The Aggregate and Complementary Impact of Micro Distortions," 2011 Meeting Papers 1426, Society for Economic Dynamics.
    10. Gabriel Felbermayr & Julien Prat, 2011. "Product Market Regulation, Firm Selection, And Unemployment," Journal of the European Economic Association, European Economic Association, vol. 9(2), pages 278-317, April.
    11. Niklas Elert, 2014. "What determines entry? Evidence from Sweden," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 53(1), pages 55-92, August.
    12. Alexandre Janiak, 2010. "Structural unemployment and the regulation of product market," Documentos de Trabajo 274, Centro de Economía Aplicada, Universidad de Chile.
    13. Markus Poschke, 2018. "The Firm Size Distribution across Countries and Skill-Biased Change in Entrepreneurial Technology," American Economic Journal: Macroeconomics, American Economic Association, vol. 10(3), pages 1-41, July.
    14. Mendoza, Ronald U. & Canare, Tristan A. & Ang, Alvin, 2015. "Doing Business: A Review of Literature and Its Role in APEC 2015," Research Paper Series DP 2015-37, Philippine Institute for Development Studies.
    15. Minford, Lucy & Meenagh, David, 2018. "Supply-side policy and economic growth: A case study of the UK," Cardiff Economics Working Papers E2018/10, Cardiff University, Cardiff Business School, Economics Section.
    16. repec:bla:rdevec:v:21:y:2017:i:4:p:1281-1304 is not listed on IDEAS
    17. Hernan Moscoso Boedo & Toshihiko Mukoyama, 2012. "Evaluating the effects of entry regulations and firing costs on international income differences," Journal of Economic Growth, Springer, vol. 17(2), pages 143-170, June.
    18. Afonso, Óscar, 2016. "Effects of labour-market institutions on employment, wages, R&D intensity and growth in 27 OECD countries: From theory to practice," Economic Modelling, Elsevier, vol. 53(C), pages 48-62.
    19. Mendoza, Ronald U. & Canare, Tristan A. & Ang, Alvin, 2015. "Doing Business: A Review of Literature and Its Role in APEC 2015," Discussion Papers DP 2015-37, Philippine Institute for Development Studies.
    20. repec:eee:ecolet:v:161:y:2017:i:c:p:138-140 is not listed on IDEAS
    21. Hansen, G.D. & Ohanian, L.E., 2016. "Neoclassical Models in Macroeconomics," Handbook of Macroeconomics, Elsevier.
    22. Ferrari, Filippo, 2011. "Lo sviluppo delle competenze nei contesti precari
      [Skills development in precariousness: the dark side of flexibility?]      ," MPRA Paper 33284, University Library of Munich, Germany.
    23. del Río, Fernando, 2018. "Property Rights, Predation, and Productivity," MPRA Paper 86246, University Library of Munich, Germany.

    More about this item

    JEL classification:

    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L16 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Industrial Organization and Macroeconomics; Macroeconomic Industrial Structure
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General

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