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Employment Protection Laws, Barriers to Entrepreneurship, Financial Markets and Firm Size

  • Raquel Fonseca
  • Natalia Utrero

This paper provides new evidence on the institutional determinants of firm size. Using a comprehensive longitudinal database of firm characteristics across 29 industrial sectors in 15 OECD countries, the authors study how labor regulations and barriers to entrepreneurship affect industrial organization in the presence of credit market frictions. They show that strict employment protection laws and more barriers to entrepreneurship affect negatively firms in sectors that are dependent on external funds. Their findings show that the interaction between market regulations and financial imperfections help to explain some of the differences in firm structure across countries.

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Paper provided by RAND Corporation in its series Working Papers with number 454.

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Length: 37 pages
Date of creation: Nov 2006
Date of revision:
Handle: RePEc:ran:wpaper:454
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  1. Giuseppe Bertola, 2004. "A Pure Theory of Job Security and Labour Income Risk," Review of Economic Studies, Oxford University Press, vol. 71(1), pages 43-61.
  2. Raghuram G. Rajan & Luigi Zingales, 2001. "Financial Systems, Industrial Structure, and Growth," Oxford Review of Economic Policy, Oxford University Press, vol. 17(4), pages 467-482.
  3. Stefano Scarpetta & Thierry Tressel, 2002. "Productivity and Convergence in a Panel of OECD Industries: Do Regulations and Institutions Matter?," OECD Economics Department Working Papers 342, OECD Publishing.
  4. Steve Bond, 2002. "Dynamic panel data models: a guide to microdata methods and practice," CeMMAP working papers CWP09/02, Centre for Microdata Methods and Practice, Institute for Fiscal Studies.
  5. Blundell, R. & Bond, S., 1995. "Initial Conditions and Moment Restrictions in Dynamic Panel Data Models," Economics Papers 104, Economics Group, Nuffield College, University of Oxford.
  6. Henrekson, Magnus & Johansson, Dan, 1998. "Institutional Effects on the Evolution of the Size Distribution of Firms," Working Paper Series 497, Research Institute of Industrial Economics.
  7. Juan C. Botero & Simeon Djankov & Rafael La Porta & Florencio Lopez-de-Silanes & Andrei Shleifer, 2004. "The Regulation of Labor," The Quarterly Journal of Economics, Oxford University Press, vol. 119(4), pages 1339-1382.
  8. Pissarides, Christopher A., 2001. "Employment protection," Labour Economics, Elsevier, vol. 8(2), pages 131-159, May.
  9. Amihai Glazer & Vesa Kanniainen, 2002. "The Effects of Employment Protection on the Choice of Risky Projects," CESifo Working Paper Series 689, CESifo Group Munich.
  10. Manuel Arellano & Stephen Bond, 1991. "Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations," Review of Economic Studies, Oxford University Press, vol. 58(2), pages 277-297.
  11. Raghuram G. Rajan & Luigi Zingales, 1996. "Financial Dependence and Growth," NBER Working Papers 5758, National Bureau of Economic Research, Inc.
  12. Nickell, S. & Layard, R., 1997. "Labour Market Institutions and Economic Performance," Papers 23, Centre for Economic Performance & Institute of Economics.
  13. repec:hhs:iuiwop:529 is not listed on IDEAS
  14. Blanchflower, David G & Oswald, Andrew J, 1998. "What Makes an Entrepreneur?," Journal of Labor Economics, University of Chicago Press, vol. 16(1), pages 26-60, January.
  15. Krishna B. Kumar & Raghuram G. Rajan & Luigi Zingales, . "What Determines Firm Size?," CRSP working papers 496, Center for Research in Security Prices, Graduate School of Business, University of Chicago.
  16. Nicola Cetorelli, 2002. "Does bank concentration lead to concentration in industrial sectors?," Proceedings 818, Federal Reserve Bank of Chicago.
  17. Tito Boeri & Giuseppe Nicoletti & Stefano Scarpetta, . "Regulation and Labour Market Performance," Working Papers 158, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
  18. Steven J. Davis & Magnus Henrekson, 2000. "Wage-Setting Institutions as Industrial Policy," NBER Working Papers 7502, National Bureau of Economic Research, Inc.
  19. Claessens, Stijn & Laeven, Luc, 2002. "Financial Development, Property Rights and Growth," CEPR Discussion Papers 3295, C.E.P.R. Discussion Papers.
  20. Stefano Scarpetta & Philip Hemmings & Thierry Tressel & Jaejoon Woo, 2002. "The Role of Policy and Institutions for Productivity and Firm Dynamics: Evidence from Micro and Industry Data," OECD Economics Department Working Papers 329, OECD Publishing.
  21. Patrizio Pagano & Fabiano Schivardi, 2001. "Firm Size Distribution and Growth," Temi di discussione (Economic working papers) 394, Bank of Italy, Economic Research and International Relations Area.
  22. Steve J. Davis & John Haltiwanger, 1991. "Wage Dispersion Between and Within U.S. Manufacturing Plants, 1963-1986," NBER Working Papers 3722, National Bureau of Economic Research, Inc.
  23. repec:adr:anecst:y:1996:i:41-42:p:14 is not listed on IDEAS
  24. Leora Klapper & Luc Laeven & Raghuram Rajan, 2004. "Business Environment and Firm Entry: Evidence from International Data," NBER Working Papers 10380, National Bureau of Economic Research, Inc.
  25. Davis, Steven J & Henrekson, Magnus, 1999. "Explaining National Differences in the Size and Industry Distribution of Employment," Small Business Economics, Springer, vol. 12(1), pages 59-83, February.
  26. Windmeijer, Frank, 2000. "Moment conditions for fixed effects count data models with endogenous regressors," Economics Letters, Elsevier, vol. 68(1), pages 21-24, July.
  27. Fonseca, Raquel & Lopez-Garcia, Paloma & Pissarides, Christopher A., 2001. "Entrepreneurship, start-up costs and employment," European Economic Review, Elsevier, vol. 45(4-6), pages 692-705, May.
  28. Davidsson, Per & Henrekson, Magnus, 2002. "Determinants of the Prevalence of Start-Ups and High-Growth Firms," Small Business Economics, Springer, vol. 19(2), pages 81-104, September.
  29. Giuseppe Nicoletti & Stefano Scarpetta & Olivier Boylaud, 2000. "Summary Indicators of Product Market Regulation with an Extension to Employment Protection Legislation," OECD Economics Department Working Papers 226, OECD Publishing.
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