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Red tape and industry dynamics: a cross-country analysis

Author

Listed:
  • Chiara Tomasi

    (University of Trento
    Laboratory of Economics and Management, Sant’Anna School of Advanced Studies)

  • Fabio Pieri

    (University of Trento
    Centro Studi Luca d’Agliano)

  • Valentina Cecco

    (University of Trento)

Abstract

In this paper, we analyze the relationship between the stringency of red tape and the entry and exit rates of firms. To do so, we use a panel dataset on firm entry and exit rates, obtained from Eurostat Business Demography, covering 22 European countries and 14 manufacturing sectors observed over the period 2013–2019. We complement the information on firm dynamics with country-level data on red tape from the World Bank’s Doing Business database. Five dimensions of red tape are considered: regulations for starting a business, construction permits, procedures for getting electricity, registering property, and contract enforcement. In addition, both the cost and the time taken to complete the administrative procedures are used as metrics of red tape. Using a difference-in-difference approach à la Rajan and Zingales (1998), we find a negative effect of administrative burdens on the entry and exit rates of firms across European countries. Moreover, we find that the negative effect is more pronounced for smaller firms. Finally, the time taken to comply with bureaucratic procedures is a greater impediment to smooth entry and exit than the monetary costs associated with these administrative barriers.

Suggested Citation

  • Chiara Tomasi & Fabio Pieri & Valentina Cecco, 2023. "Red tape and industry dynamics: a cross-country analysis," Economia e Politica Industriale: Journal of Industrial and Business Economics, Springer;Associazione Amici di Economia e Politica Industriale, vol. 50(2), pages 283-320, June.
  • Handle: RePEc:spr:epolin:v:50:y:2023:i:2:d:10.1007_s40812-023-00266-0
    DOI: 10.1007/s40812-023-00266-0
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    More about this item

    Keywords

    Entry rate; Exit rate; Regulation; Red tape; Difference-in-difference;
    All these keywords.

    JEL classification:

    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
    • L53 - Industrial Organization - - Regulation and Industrial Policy - - - Enterprise Policy
    • L60 - Industrial Organization - - Industry Studies: Manufacturing - - - General
    • M13 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - New Firms; Startups

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