Business Environment and Firm Entry: Evidence from International Data

64 Pages Posted: 23 Jun 2004

See all articles by Leora F. Klapper

Leora F. Klapper

World Bank; World Bank - Development Research Group (DECRG)

Luc Laeven

European Central Bank (ECB); Centre for Economic Policy Research (CEPR)

Raghuram G. Rajan

University of Chicago - Booth School of Business; International Monetary Fund (IMF); National Bureau of Economic Research (NBER)

Multiple version iconThere are 3 versions of this paper

Date Written: June 2004

Abstract

Using a comprehensive database of firms in Western and Eastern Europe, we study how the business environment in a country drives the creation of new firms. Our focus is on regulations governing entry. We find entry regulations hamper entry, especially in industries that naturally should have high entry. Also, value added per employee in naturally "high entry" industries grows more slowly in countries with onerous regulations on entry. The consequences of more restrictive entry barriers are seen, not in young firms, but in older firms, who grow more slowly and to a smaller size. Thus the absence of the disciplining effect of entry has real adverse effects. Interestingly, regulatory entry barriers have no adverse effect on entry in corrupt countries, only in less corrupt ones. Taken together, the evidence suggests bureaucratic entry regulations are neither benign nor welfare improving. However, not all regulations inhibit entry. In particular, regulations that enhance the enforcement of intellectual property rights or those that lead to a better developed financial sector do lead to greater entry in industries that do more R&D or industries that need more external finance.

Keywords: Entry, Regulations

JEL Classification: K20, L50

Suggested Citation

Klapper, Leora F. and Laeven, Luc A. and Rajan, Raghuram G., Business Environment and Firm Entry: Evidence from International Data (June 2004). Available at SSRN: https://ssrn.com/abstract=557830 or http://dx.doi.org/10.2139/ssrn.557830

Leora F. Klapper (Contact Author)

World Bank ( email )

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World Bank - Development Research Group (DECRG)

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Luc A. Laeven

European Central Bank (ECB) ( email )

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Centre for Economic Policy Research (CEPR)

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United Kingdom

Raghuram G. Rajan

University of Chicago - Booth School of Business ( email )

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National Bureau of Economic Research (NBER)

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