A Spatial Model of the Impact of Bankruptcy Law on Entrepreneurship

Spatial Economic Analysis, Vol. 4., Issue 1, 2009

52 Pages Posted: 8 Feb 2013  

Aparna Mathur

American Enterprise Institute (AEI)

Date Written: 2009

Abstract

This paper employs spatial econometrics techniques to estimate the impact of bankruptcy regulation on small firm formation. The estimation of the model is computationally challenging due to the joint appearance of a lagged endogenous variable and the unobserved heterogeneity which requires modelling of initial conditions as described in Heckman (1981). We test for the joint significance of the state dummy variables in a way that can be viewed as an interesting alternative to the Hausman procedure. This was important for our analysis since, as sometimes happens in finite samples, the estimated variance-covariance matrix was not positive semi-definite. We found that the predicted probability of starting a business is 25% higher in states with higher bankruptcy exemptions than their neighbours relative to states with lower exemptions than their neighbours.

Keywords: entrepreneurship, bankruptcy law, small firms, spatial econometrics

JEL Classification: M13, K35, C21, C23

Suggested Citation

Mathur, Aparna, A Spatial Model of the Impact of Bankruptcy Law on Entrepreneurship (2009). Spatial Economic Analysis, Vol. 4., Issue 1, 2009. Available at SSRN: https://ssrn.com/abstract=2212988

Aparna Mathur (Contact Author)

American Enterprise Institute (AEI) ( email )

1150 17th Street, N.W.
Washington, DC 20036
United States
202-868-6026 (Phone)

HOME PAGE: http://www.aei.org/scholar/aparna-mathur/

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