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Financial Development, Labor and Market Regulations and Growth

  • Raquel Fonseca


    (CSEF, University of Salerno)

  • Natalia Utrero


    (University Autonoma de Barcelona)

This paper investigates the importance that market regulation and fi nancial imperfections have on firm growth. We analyse institutions af- fecting labor market as Employment Protection Laws (EP) and Product Market Regulation (PM). We show that together with the bene ficial ef- fects of financial development, a firm will get less financing, and thus invest less, in a weak financial market ( finance effect), the strictness of product and labor market regulations also affect fi rm growth (labor effect). In particular, we show that the stricter the rules the more detrimental the infl‡uence on growth in sectoral value added for a large number of coun- tries. We also show that the labor effect overcomes the positive fi nance effect.

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Paper provided by Centre d'Études des Politiques Économiques (EPEE), Université d'Evry Val d'Essonne in its series Documents de recherche with number 05-05.

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Length: 30 pages
Date of creation: 2005
Date of revision:
Handle: RePEc:eve:wpaper:05-05
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