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Regulation, entrepreneurship, and dynamism

Author

Listed:
  • Dustin Chambers

    (Salisbury University
    Mercatus Center at George Mason University)

  • Patrick A. McLaughlin

    (Mercatus Center at George Mason University)

  • Oliver Sherouse

Abstract

Most researchers observe a negative association between regulatory accumulation and traditional measures of entrepreneurship (i.e., firm startups and job formation). However, when measuring business activity with metrics common to the dynamism literature, researchers fail to find a significant association between regulation and startup activity. After ruling out differences in unit of measure, industry aggregation, and regulation measurement, we demonstrate that differences in entrepreneurship and dynamism measurement are potentially responsible for the conflicting results. However, we do find empirical evidence that the relationship between regulations and job creation rates varies across industries. In industries with high job creation rates in the prior period, increased regulations are associated with lower job creation rates in the current period. However, the opposite is true in industries with low job creation rates in the prior period (i.e., increased regulations are associated with higher job creation rates in the current period). Depending upon the vintage of the regulation dataset (i.e., RegData 2.0), a similar pattern holds for the startup rate.

Suggested Citation

  • Dustin Chambers & Patrick A. McLaughlin & Oliver Sherouse, 2023. "Regulation, entrepreneurship, and dynamism," Empirical Economics, Springer, vol. 64(5), pages 2449-2466, May.
    • Handle: RePEc:spr:empeco:v:64:y:2023:i:5:d:10.1007_s00181-022-02321-6
    DOI: 10.1007/s00181-022-02321-6
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    References listed on IDEAS

    as
    1. Dustin Chambers & Patrick A. McLaughlin & Tyler Richards, 2022. "Regulation, entrepreneurship, and firm size," Journal of Regulatory Economics, Springer, vol. 61(2), pages 108-134, April.
    2. Omar Al‐Ubaydli & Patrick A. McLaughlin, 2017. "RegData: A numerical database on industry‐specific regulations for all United States industries and federal regulations, 1997–2012," Regulation & Governance, John Wiley & Sons, vol. 11(1), pages 109-123, March.
    3. John Dawson & John Seater, 2013. "Federal regulation and aggregate economic growth," Journal of Economic Growth, Springer, vol. 18(2), pages 137-177, June.
    4. Bentley Coffey & Patrick McLaughlin & Pietro Peretto, 2020. "The Cumulative Cost of Regulations," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 38, pages 1-21, October.
    5. Eric Bartelsman & John Haltiwanger & Stefano Scarpetta, 2013. "Cross-Country Differences in Productivity: The Role of Allocation and Selection," American Economic Review, American Economic Association, vol. 103(1), pages 305-334, February.
    6. Chang-Tai Hsieh & Peter J. Klenow, 2009. "Misallocation and Manufacturing TFP in China and India," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 124(4), pages 1403-1448.
    7. James B. Bailey & Diana W. Thomas, 2017. "Regulating away competition: the effect of regulation on entrepreneurship and employment," Journal of Regulatory Economics, Springer, vol. 52(3), pages 237-254, December.
    8. Steven J. Davis & John Haltiwanger, 2014. "Labor Market Fluidity and Economic Performance," NBER Working Papers 20479, National Bureau of Economic Research, Inc.
    9. Marc T. Law & Patrick A. McLaughlin, 2022. "Industry size and regulation: Evidence from US states," Public Choice, Springer, vol. 192(1), pages 1-27, July.
    10. Manuel Arellano & Stephen Bond, 1991. "Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 58(2), pages 277-297.
    11. Chambers, Dustin & McLaughlin, Patrick, 2018. "Regulation, Entrepreneurship, and Firm Size," Working Papers 09458, George Mason University, Mercatus Center.
    12. Ryan Decker & John Haltiwanger & Ron Jarmin & Javier Miranda, 2014. "The Role of Entrepreneurship in US Job Creation and Economic Dynamism," Journal of Economic Perspectives, American Economic Association, vol. 28(3), pages 3-24, Summer.
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    More about this item

    Keywords

    Regulation; Entrepreneurship; Dynamism; Employment; Firm size;
    All these keywords.

    JEL classification:

    • K23 - Law and Economics - - Regulation and Business Law - - - Regulated Industries and Administrative Law
    • L26 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Entrepreneurship
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models

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