How does Public Regulation affect Growth?
Public regulations can increase economic growth by correcting market faults and decrease growth by consuming resources and reducing incentives. A simple theoretical framework is developed to represent commonly held views on the relationship between growth an regulation. The relationship is possibly non-linear with some level of regulation being optimal. We estimate the relation by a fixed effect non-linear panel data regression model using a new semi-parametric estimator. The outcome shows that the relationship indeed may be non-linear: High levels of regulation lowers growth, but there is no effect on growth for moderate to low levels of regulation.
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