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Productivity and entry regulation: evidence from the universe of firms

Author

Listed:
  • Andrea Cintolesi

    (Bank of Italy)

  • Sauro Mocetti

    (Bank of Italy)

  • Giacomo Roma

    (Bank of Italy)

Abstract

Burdensome entry regulations can impede productivity growth, particularly in the service sector, which is characterized by limited competition. We examine this issue using a novel indicator of entry regulation at the 5-digit sector level, relying on a unique dataset that covers the universe of firms and exploiting different reforms that changed the extent of regulation across sectors and over time. These new data reveal that, akin to productivity, entry regulation varies significantly across narrowly defined sectors. The empirical analysis shows that, in sectors undergoing reforms, productivity and entry rates increase and prices decrease relative to the control sectors. The increase in the productivity of incumbent firms and, to a lesser extent, reallocation and selection mechanisms contribute to the overall effect on aggregate productivity. Although both professional requirements and red tape negatively affect productivity, the second one proves more relevant. Finally, the impact of entry regulation varies across firms and industries and it is stronger in sectors with higher 'natural' entry rates.

Suggested Citation

  • Andrea Cintolesi & Sauro Mocetti & Giacomo Roma, 2024. "Productivity and entry regulation: evidence from the universe of firms," Temi di discussione (Economic working papers) 1455, Bank of Italy, Economic Research and International Relations Area.
    • Handle: RePEc:bdi:wptemi:td_1455_24
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    More about this item

    Keywords

    regulation; red tape; occupational licensing; labour productivity; firm entry; allocative efficiency;
    All these keywords.

    JEL classification:

    • K20 - Law and Economics - - Regulation and Business Law - - - General
    • L20 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - General
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
    • J44 - Labor and Demographic Economics - - Particular Labor Markets - - - Professional Labor Markets and Occupations
    • L80 - Industrial Organization - - Industry Studies: Services - - - General
    • L90 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - General
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence

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