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Financial Development, Labor and Market Regulations and Growth

Author

Listed:
  • Raquel Fonseca

    (CSEF, University of Salerno)

  • Natalia Utrero

    (University Autonoma de Barcelona)

Abstract

This paper investigates the importance that market regulation and financial 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 beneficial 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 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.

Suggested Citation

  • Raquel Fonseca & Natalia Utrero, 2005. "Financial Development, Labor and Market Regulations and Growth," Documents de recherche 05-05, Centre d'Études des Politiques Économiques (EPEE), Université d'Evry Val d'Essonne.
    • Handle: RePEc:eve:wpaper:05-05
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    Cited by:

    1. Guglielmo Barone & Federico Cingano, 2011. "Service Regulation and Growth: Evidence from OECD Countries," Economic Journal, Royal Economic Society, vol. 121(555), pages 931-957, September.
    2. Federico Cingano & Marco Leonardi & Julián Messina & Giovanni Pica, 2010. "The effects of employment protection legislation and financial market imperfections on investment: evidence from a firm-level panel of EU countries [Technology and labour regulations]," Economic Policy, CEPR, CESifo, Sciences Po;CES;MSH, vol. 25(61), pages 117-163.

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    More about this item

    Keywords

    Financial development; labor and product market institutions; growth;
    All these keywords.

    JEL classification:

    • G2 - Financial Economics - - Financial Institutions and Services
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • J32 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Nonwage Labor Costs and Benefits; Retirement Plans; Private Pensions
    • L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General

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