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Where does regulation hurt? Evidence from new businesses across countries

By Silvia Ardagna, Annamaria Lusardi, Steve Davis, Burcu Duygan-bump, Gita Gopinath, Paul Reynolds, Fabio Schiantarelli, Antoinette Schoar, Luis Serven and Luigi Zingales


We use two micro datasets that collect harmonized data across countries to investigate the effects of regulation on new businesses. We are able to distinguish between two types of entrepreneurs: those who start a business to pursue a business opportunity and those who could not find better work. Irrespective of the measure of regulation we use, we always find a detrimental effect of regulation on new businesses. While women are overall less likely to start new businesses, in more regulated countries women are pulled into entrepreneurship but not to pursue a business opportunity, only because they could not find better work. Moreover, regulation dampens the effects of self-assessed business skills and social networks. In more regulated economies, those with better business skills and those who know other entrepreneurs are less likely to become entrepreneurs to purse a business opportunity. Tighter regulation also exacerbates fear of failure, further discouraging business start-up. All our estimates point to a negative effect of regulation.

Year: 2008
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