IDEAS home Printed from https://ideas.repec.org/p/ran/wpaper/wr-454.html
   My bibliography  Save this paper

Employment Protection Laws, Barriers to Entrepreneurship, Financial Markets and Firm Size

Author

Listed:
  • Raquel Fonseca Benito
  • Natalia Utrero

Abstract

This paper provides new evidence on the institutional determinants of firm size. Using a comprehensive longitudinal database of firm characteristics across 29 industrial sectors in 15 OECD countries, the authors study how labor regulations and barriers to entrepreneurship affect industrial organization in the presence of credit market frictions. They show that strict employment protection laws and more barriers to entrepreneurship affect negatively firms in sectors that are dependent on external funds. Their findings show that the interaction between market regulations and financial imperfections help to explain some of the differences in firm structure across countries.

Suggested Citation

  • Raquel Fonseca Benito & Natalia Utrero, 2007. "Employment Protection Laws, Barriers to Entrepreneurship, Financial Markets and Firm Size," Working Papers WR-454, RAND Corporation.
    • Handle: RePEc:ran:wpaper:wr-454
    as

    Download full text from publisher

    File URL: https://www.rand.org/content/dam/rand/pubs/working_papers/2007/RAND_WR454.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Tito Boeri & Giuseppe Nicoletti & Stefano Scarpetta, "undated". "Regulation and Labour Market Performance," Working Papers 158, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
    2. Glazer, A. & Kanniainen, V., 2000. "The Effects of Employment Protection on the Choice of Risky Projects," Papers 00-05, California Irvine - School of Social Sciences.
    3. Giuseppe Bertola, 2004. "A Pure Theory of Job Security and Labour Income Risk," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 71(1), pages 43-61.
    4. Klapper, Leora & Laeven, Luc & Rajan, Raghuram, 2004. "Business environment and firm entry : Evidence from international data," Policy Research Working Paper Series 3232, The World Bank.
    5. Blanchflower, David G & Oswald, Andrew J, 1998. "What Makes an Entrepreneur?," Journal of Labor Economics, University of Chicago Press, vol. 16(1), pages 26-60, January.
    6. Rajan, Raghuram G & Zingales, Luigi, 1998. "Financial Dependence and Growth," American Economic Review, American Economic Association, vol. 88(3), pages 559-586, June.
    7. Klapper, Leora & Laeven, Luc & Rajan, Raghuram, 2006. "Entry regulation as a barrier to entrepreneurship," Journal of Financial Economics, Elsevier, vol. 82(3), pages 591-629, December.
    8. Stephen R. Bond, 2002. "Dynamic panel data models: a guide to micro data methods and practice," Portuguese Economic Journal, Springer;Instituto Superior de Economia e Gestao, vol. 1(2), pages 141-162, August.
    9. Blundell, Richard & Bond, Stephen, 1998. "Initial conditions and moment restrictions in dynamic panel data models," Journal of Econometrics, Elsevier, vol. 87(1), pages 115-143, August.
    10. Davidsson, Per & Henrekson, Magnus, 2002. "Determinants of the Prevalence of Start-Ups and High-Growth Firms," Small Business Economics, Springer, vol. 19(2), pages 81-104, September.
    11. Davis, Steven J. & Henrekson, Magnus, 2005. "Wage-setting institutions as industrial policy," Labour Economics, Elsevier, vol. 12(3), pages 345-377, June.
    12. Steven J. Davis & John Haltiwanger, 1996. "Employer Size and the Wage Structure in U.S. Manufacturing," Annals of Economics and Statistics, GENES, issue 41-42, pages 323-367.
    13. Etienne Wasmer & Philippe Weil, 2004. "The Macroeconomics of Labor and Credit Market Imperfections," American Economic Review, American Economic Association, vol. 94(4), pages 944-963, September.
    14. Nicola Cetorelli, 2001. "Does bank concentration lead to concentration in industrial sectors?," Working Paper Series WP-01-01, Federal Reserve Bank of Chicago.
    15. Philippe Weil & Etienne Wasmer, 2004. "The macroeconomics of credit and labor market imperfections," ULB Institutional Repository 2013/13436, ULB -- Universite Libre de Bruxelles.
    16. Fonseca, Raquel & Lopez-Garcia, Paloma & Pissarides, Christopher A., 2001. "Entrepreneurship, start-up costs and employment," European Economic Review, Elsevier, vol. 45(4-6), pages 692-705, May.
    17. Stephen Bond, 2002. "Dynamic panel data models: a guide to microdata methods and practice," CeMMAP working papers CWP09/02, Centre for Microdata Methods and Practice, Institute for Fiscal Studies.
    18. Patrizio Pagano & Fabiano Schivardi, 2003. "Firm Size Distribution and Growth," Scandinavian Journal of Economics, Wiley Blackwell, vol. 105(2), pages 255-274, June.
    19. Stefano Scarpetta & Philip Hemmings & Thierry Tressel & Jaejoon Woo, 2002. "The Role of Policy and Institutions for Productivity and Firm Dynamics: Evidence from Micro and Industry Data," OECD Economics Department Working Papers 329, OECD Publishing.
    20. Raghuram G. Rajan & Luigi Zingales, 2001. "Financial Systems, Industrial Structure, and Growth," Oxford Review of Economic Policy, Oxford University Press and Oxford Review of Economic Policy Limited, vol. 17(4), pages 467-482.
    21. Davis, Steven J & Henrekson, Magnus, 1999. "Explaining National Differences in the Size and Industry Distribution of Employment," Small Business Economics, Springer, vol. 12(1), pages 59-83, February.
    22. Henrekson, Magnus & Johansson, Dan, 1999. "Institutional Effects on the Evolution of the Size Distribution of Firms," Small Business Economics, Springer, vol. 12(1), pages 11-23, February.
    23. repec:hhs:iuiwop:529 is not listed on IDEAS
    24. Stefano Scarpetta & Thierry Tressel, 2002. "Productivity and Convergence in a Panel of OECD Industries: Do Regulations and Institutions Matter?," OECD Economics Department Working Papers 342, OECD Publishing.
    25. repec:adr:anecst:y:1996:i:41-42:p:14 is not listed on IDEAS
    26. Manuel Arellano & Stephen Bond, 1991. "Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 58(2), pages 277-297.
    27. Pissarides, Christopher A., 2001. "Employment protection," Labour Economics, Elsevier, vol. 8(2), pages 131-159, May.
    28. Windmeijer, Frank, 2000. "Moment conditions for fixed effects count data models with endogenous regressors," Economics Letters, Elsevier, vol. 68(1), pages 21-24, July.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Kenichi Ueda & Stijn Claessen, 2016. "Monopoly Rights and Economic Growth: An Inverted U-Shaped Relation," CARF F-Series CARF-F-396, Center for Advanced Research in Finance, Faculty of Economics, The University of Tokyo.
    2. Claessens, Stijn & Ueda, Kenichi, 2020. "Basic Employment Protection, Bargaining Power, and Economic Outcomes," Journal of Law, Finance, and Accounting, now publishers, vol. 5(2), pages 179-229, September.
    3. Mr. Kenichi Ueda & Mr. Stijn Claessens, 2008. "Banks and Labor as Stakeholders: Impact on Economic Performance," IMF Working Papers 2008/229, International Monetary Fund.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Raquel Fonseca Benito & Natalia Utrero, 2007. "Employment Protection Laws, Barriers to Entrepreneurship, Financial Markets and Firm Size," Working Papers 454, RAND Corporation.
    2. Raquel Fonseca & Natalia Utrero González, 2004. "Do Market Regulation and Financial Imperfections Affect Firm Size? New Empirical Evidence," CSEF Working Papers 119, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy.
    3. Raquel FONSECA & Natalia UTRERO- GONZALEZ, 2005. "Financial Development, Labor and Market Regulations and Growth," Finance 0509016, University Library of Munich, Germany.
    4. Silvia Fedeli & Vitantonio Mariella & Marco Onofri, 2018. "Determinants of Joblessness During the Economic Crisis: Impact of Criminality in the Italian Labour Market," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 139(2), pages 559-588, September.
    5. Calcagnini, Giorgio & Ferrando, Annalisa & Giombini, Germana, 2014. "Does employment protection legislation affect firm investment? The European case," Economic Modelling, Elsevier, vol. 36(C), pages 658-665.
    6. Martinsson, Gustav, 2009. "Finance and R&D Investments - is there a debt overhang effect on R&D investments?," Working Paper Series in Economics and Institutions of Innovation 174, Royal Institute of Technology, CESIS - Centre of Excellence for Science and Innovation Studies.
    7. Samargandi, Nahla & Fidrmuc, Jan & Ghosh, Sugata, 2015. "Is the Relationship Between Financial Development and Economic Growth Monotonic? Evidence from a Sample of Middle-Income Countries," World Development, Elsevier, vol. 68(C), pages 66-81.
    8. Oliveira, Fernando N. de & Neto, Alberto Ronchi, 2012. "An empirical analysis of the external finance premium of public non-financial corporations in Brazil," Revista Brasileira de Economia - RBE, EPGE Brazilian School of Economics and Finance - FGV EPGE (Brazil), vol. 66(3), October.
    9. Rafiou Raphaël Bétila, 2021. "The impact of Ease of Doing Business on economic growth: a dynamic panel analysis for African countries," SN Business & Economics, Springer, vol. 1(10), pages 1-34, October.
    10. Ahlin, Christian & Pang, Jiaren, 2008. "Are financial development and corruption control substitutes in promoting growth?," Journal of Development Economics, Elsevier, vol. 86(2), pages 414-433, June.
    11. Eduardo A. Cavallo & Alberto Cavallo, 2008. "Are Crises Good for Long-Term Growth? The Role of Political Institutions," Research Department Publications 4589, Inter-American Development Bank, Research Department.
    12. Aghion, Philippe & Bacchetta, Philippe & Rancière, Romain & Rogoff, Kenneth, 2009. "Exchange rate volatility and productivity growth: The role of financial development," Journal of Monetary Economics, Elsevier, vol. 56(4), pages 494-513, May.
    13. Yongfu Huang & Jonathan Temple, 2005. "Does external trade promote financial development?," Bristol Economics Discussion Papers 05/575, School of Economics, University of Bristol, UK.
    14. Ferreira, Candida, 2018. "Financial Crisis, Banking Sector Performance and Economic Growth in the European Union," Economia Internazionale / International Economics, Camera di Commercio Industria Artigianato Agricoltura di Genova, vol. 71(3), pages 257-288.
    15. Cavallo, Alberto F. & Cavallo, Eduardo A., 2010. "Are crises good for long-term growth? The role of political institutions," Journal of Macroeconomics, Elsevier, vol. 32(3), pages 838-857, September.
    16. repec:fgv:epgrbe:v:66:n:3:a:4 is not listed on IDEAS
    17. Amable, Bruno & Demmou, Lila & Lezdema, Ivan, 2007. "Competition, Innovation and Distance to Frontier," CEPREMAP Working Papers (Docweb) 0706, CEPREMAP.
    18. Sultan Mehmood, 2013. "Access to External Finance and Innovation: A Macroeconomic Perspective," CPB Discussion Paper 218, CPB Netherlands Bureau for Economic Policy Analysis.
    19. Mika Maliranta, 2005. "R&D, International Trade and Creative Destruction—Empirical Findings from Finnish Manufacturing Industries," Journal of Industry, Competition and Trade, Springer, vol. 5(1), pages 27-58, January.
    20. Cândida Ferreira, 2015. "The relevance of the EU banking sector to economic growth and the recent financial crisis," Working Papers Department of Economics 2015/02, ISEG - Lisbon School of Economics and Management, Department of Economics, Universidade de Lisboa.
    21. Kamilia Loukil, 2020. "Dynamic Panel Data Analysis Of The Impact Of Intellectual Property Rights On Entrepreneurship In Emerging And Developing Countries," Oradea Journal of Business and Economics, University of Oradea, Faculty of Economics, vol. 5(1), pages 40-48, March.

    More about this item

    Keywords

    institutions; firm size; financial imperfections; labor costs; entrepreneurship costs;
    All these keywords.

    JEL classification:

    • J2 - Labor and Demographic Economics - - Demand and Supply of Labor
    • G2 - Financial Economics - - Financial Institutions and Services
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General
    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ran:wpaper:wr-454. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Benson Wong (email available below). General contact details of provider: https://edirc.repec.org/data/lpranus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.