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Entry regulation and intersectoral reallocation

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Abstract

We study how restrictions on firm entry affect intersectoral factor reallocation when open economies experience global economic shocks. In our theoretical framework, countries trade freely in a range of differentiated sectors that are subject to country-specific and global shocks. Entry restrictions are modeled as an upper bound on the introduction of new differentiated goods following shocks. Prices and quantities adjust to clear international goods markets, and wages adjust to clear national labor markets. We show that in general equilibrium, countries with tighter entry restrictions see less factor reallocation compared to the frictionless benchmark. In our empirical work, we compare sectoral employment reallocation across countries in the 1980s and 1990s with proxies for frictionless benchmark reallocation. Our results indicate that the gap between actual and frictionless reallocation is greater in countries where it takes longer to start a firm.

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  • Antonio Ciccone & Elias Papaioannou, 2008. "Entry regulation and intersectoral reallocation," Economics Working Papers 1353, Department of Economics and Business, Universitat Pompeu Fabra.
  • Handle: RePEc:upf:upfgen:1353
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    1. Les infrastructures d’innovation et croissance économique en Afrique
      by jm26121978@gmail.com (Jihène Malek) in BS Initiative on 2014-07-02 11:05:09

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