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Licensing Procedures in Developing Countries: Should They Be Part of the Set-up Process?

  • Zhang, Qing
  • Ogus, Anthony

Surveys have shown that, in general, developing countries tend to regulate the set-up processes for firms more intensively than developed countries. In particular, while many developing countries tend to integrate licensing requirements in the set-up process ('set-up licensing'), the more developed countries generally use licensing procedures independent of the set-up process ('independent licensing'). Set-up licensing requirements must be met before an enterprise can lawfully exist and operate in any respect. In contrast, an independent licensing system merely requires authorisation for the particular activities that are to be controlled, and this does not affect the right of the firm to exist and engage in other business activities. More importantly, set-up licensing may impose more compliance costs on entrepreneurs, more administrative costs on officials and more welfare losses on consumers than independent licensing. In this paper we explore the distinction to see whether the widespread preference for set-up licensing in developing countries can be justified on public interest grounds, or at least explained on private interest grounds.

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Paper provided by University of Manchester, Institute for Development Policy and Management (IDPM) in its series Centre on Regulation and Competition (CRC) Working papers with number 30671.

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Date of creation: 2005
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Handle: RePEc:ags:idpmcr:30671
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  1. Simeon Djankov & Rafael La Porta & Florencio Lopez-De-Silanes & Andrei Shleifer, 2002. "The Regulation Of Entry," The Quarterly Journal of Economics, MIT Press, vol. 117(1), pages 1-37, February.
  2. Gary S. Becker, 1968. "Crime and Punishment: An Economic Approach," Journal of Political Economy, University of Chicago Press, vol. 76, pages 169.
  3. Morisset, Jacques & Lumenga Neso, Olivier, 2002. "Administrative barriers to foreign investment in developing countries," Policy Research Working Paper Series 2848, The World Bank.
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