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Greasing the Wheels of Entrepreneurship? Impact of Regulations and Corruption on Firm Entry

KOF Working Paper No. 166

CESifo Working Paper No. 2013

35 Pages Posted: 30 May 2007  

Axel Dreher

University of Heidelberg

Martin Gassebner

ETH Zurich - KOF Swiss Economic Institute; CESifo (Center for Economic Studies and Ifo Institute)

Date Written: May 2007

Abstract

The paper investigates whether the impact of regulations on entrepreneurship depends on corruption. We first test whether regulations robustly deter firm entry into the markets. Our results show that some regulations are indeed important determinants of entrepreneurial activity. Specifically, more procedures required to start a business and larger minimum capital requirements are detrimental to entrepreneurship. Second, we test whether corruption reduces the negative impact of regulations on entrepreneurship in highly regulated economies. Our empirical analysis for a maximum of 43 countries over the period 2003-2005 shows that corruption is beneficial in highly regulated economies. At the maximum level of regulation among our sample of countries, corruption significantly increases entrepreneurial activity. Our results thus provide support for the 'grease the wheels' hypothesis.

Keywords: corruption, start-ups, grease the wheels, entrepreneurship, regulation, doing business

JEL Classification: D73, F59, M13, L26

Suggested Citation

Dreher, Axel and Gassebner, Martin, Greasing the Wheels of Entrepreneurship? Impact of Regulations and Corruption on Firm Entry (May 2007). KOF Working Paper No. 166; CESifo Working Paper No. 2013. Available at SSRN: https://ssrn.com/abstract=989301 or http://dx.doi.org/10.2139/ssrn.989301

Axel Dreher

University of Heidelberg ( email )

Grabengasse 1
Heidelberg, 69117
Germany

HOME PAGE: http://www.axel-dreher.de

Martin Gassebner (Contact Author)

ETH Zurich - KOF Swiss Economic Institute ( email )

Weinbergstrasse 35
Zurich, 8092
Switzerland

HOME PAGE: http://www.kof.ethz.ch/chair/

CESifo (Center for Economic Studies and Ifo Institute) ( email )

Poschinger Str. 5
Munich, DE-81679
Germany

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