Regulation of Entry and the Distortion of Industrial Organization
Journal of Applied Economics. Vol 13, No. 1, pp. 91-111, May 2010
Posted: 12 Jun 2010
Date Written: May 2010
We study the distortions of industrial organization caused by entry regulation. We take advantage of heterogeneity across industries in their natural barriers and growth opportunities to examine whether industries are differentially affected in countries according to entry regulation. First, we consider the effect of entry regulation on the (static) industry structure. We find that regulation has a greater impact in industries with lower natural barriers to entry, both on the number of firms and on the average size of firms. We find that the effect of entry regulation on industry share is not related to differences in natural barriers. Regarding industry dynamics, we find that in countries with high entry regulation, industries respond to growth opportunities through the expansion of existing firms, while in countries with low entry regulation, growth opportunities lead to the creation of new firms; finally, the total sectoral response is invariant to the level of regulation.
Keywords: regulation, regulation of entry
JEL Classification: O14, K20, L11, L50
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