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Financial Development, Labor and Market Regulations and Growth

  • Raquel Fonseca
  • Natalia Utrero-González


    (Departament d'Economia de l'Empresa, Universitat Autonoma de Barcelona)

This paper investigates the importance that market regulation and financial imperfections have on firm growth. We analyse institutions affecting labor market as Employment Protection Laws (EP) and Product Market Regulation (PM). We show that together with the beneficial effects of financial development, a firm will get less financing, and thus investless, in a weak financial market (finance effect), the strictness of product and labor market regulations also affect firm growth (labor effect). In particular, we show that the stricter the rules the more detrimental the influence on growth in sectoral value added for a large number of coun-tries. We also show that the labor effect overcomes the positive finance effect.

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Paper provided by Department of Business Economics, Universitat Autonoma de Barcelona in its series Working Paper with number 200503.

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Date of creation: May 2005
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Handle: RePEc:bbe:wpaper:200503
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  1. Nicola Cetorelli, 2001. "Banking Market Structure, Financial Dependence and Growth: International Evidence from Industry Data," Journal of Finance, American Finance Association, vol. 56(2), pages 617-648, 04.
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  9. Nicoletti, Giuseppe & Scarpetta, Stefano, 2003. "Regulation, productivity, and growth : OECD evidence," Policy Research Working Paper Series 2944, The World Bank.
  10. Raquel Fonseca & Natalia Utrero González, 2004. "Do Market Regulation and Financial Imperfections Affect Firm Size? New Empirical Evidence," CSEF Working Papers 119, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy.
  11. Levine, Ross, 1996. "Financial development and economic growth : views and agenda," Policy Research Working Paper Series 1678, The World Bank.
  12. Messina, Julián, 2003. "The role of product market regulations in the process of structural change," Working Paper Series 0217, European Central Bank.
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  22. Djankov, Simeon & La Porta, Rafael & López-de-Silanes, Florencio & Shleifer, Andrei, 2001. "The Regulation of Entry," CEPR Discussion Papers 2953, C.E.P.R. Discussion Papers.
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  26. Pissarides, Christopher A., 2001. "Employment protection," Labour Economics, Elsevier, vol. 8(2), pages 131-159, May.
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