Do Entry Regulations Deter Entrepreneurship and Job Creation? Evidence from Recent Reforms in Portugal

By Lee G. Branstetter, Francisco Lima, Lowell J. Taylor, Ana Venâncio. 2014

287 citations recorded by the source corpus.

Recent research has suggested that the reduction of entry regulation can promote firm entry and job creation, but little is known about the quality of firms and jobs created through these reforms. To shed light on this question, we employ data from Portugal, a country which implemented one of the most dramatic and thorough policies of entry deregulation in the industrialized world. The impact of these major changes can be traced with a matched employer-employee database that provides unusually rich information on the quality of founders and employees associated with the new firms. Our assessment indicates that the short term consequences of the reform were just as one would predict with a standard economic model of entrepreneurship: The reform resulted in increased firm formation and employment, but mostly among "marginal firms" that would have been most readily deterred by existing heavy entry regulations. These marginal firms were typically small, owned by relatively poorly-educated entrepreneurs, operating in the low-tech sector (agriculture, construction, and retail trade). These firms were also less likely to survive their first two years than comparable firms that entered prior to the reform. The social impact of entry deregulation may be limited by the quality of the firms it creates.

Subfields: Economics and Econometrics

View Paper: https://www.semanticscholar.org/paper/1ada6f5aa02d47374b5f235d2e4a970643ec12f6

Citations in the corpus

• Muppets and gazelles: political and methodological biases in entrepreneurship research (2014, unknown): “…to quantity, more may mean worse (Greene et al., 2004) and increasing the number of start-ups might merely increase the number of poor performance enterprises (Branstetter et al., 2013), leading to churn and distortions that constrain the growth of other firms (Santarelli and Vivarelli, 2007).”
• Regulating away competition: the effect of regulation on entrepreneurship and employment (2017, unknown): “Branstetter et al. (2013) similarly find that regulatory reform in Portugal, which reduced the cost of firm entry, increased new firm formation and employment.”