The Role of Regulation and Regional Government Quality for High Growth Firms: The Good, the Bad, and the Ugly

Sara Amoroso (samoroso@diw.de), Benedikt Herrmann and Alexander S. Kritikos (alexander.kritikos@uni-potsdam.de)
Additional contact information
Sara Amoroso: DIW Berlin
Benedikt Herrmann: Joint Research Centre, European Commission
Alexander S. Kritikos: DIW Berlin, CEPA, University of Potsdam, IZA, IAB

No 71, CEPA Discussion Papers from Center for Economic Policy Analysis

Abstract: High growth firms (HGFs) are important for job creation and considered to be precursors of economic growth. We investigate how formal institutions, like product- and labor-market regulations, as well as the quality of regional governments that implement these regulations, affect HGF development across European regions. Using data from Eurostat, OECD, WEF, and Gothenburg University, we show that both regulatory stringency and the quality of the regional government influence the regional shares of HGFs. More importantly, we find that the effect of labor- and product-market regulations ultimately depends on the quality of regional governments: in regions with high quality of government, the share of HGFs is neither affected by the level of product market regulation, nor by more or less flexibility in hiring and firing practices. Our findings contribute to the debate on the effects of regulations by showing that regulations are not, per se, “good, bad, and ugly”, rather their impact depends on the efficiency of regional governments. Our paper offers important building blocks to develop tailored policy measures that may influence the development of HGFs in a region.

Keywords: High growth firms; Regulation; Quality of regional governments; Regions (search for similar items in EconPapers)
JEL-codes: H11 L25 L50 O43 R11 R50 (search for similar items in EconPapers)
Date: 2023-11
New Economics Papers: this item is included in nep-reg and nep-ure
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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