The Impact of Regulation on Innovation

Aghion, Philippe; Bergeaud, Antonin; van Reenen, John

The Impact of Regulation on Innovation

Philippe Aghion, Antonin Bergeaud and John van Reenen

American Economic Review, 2023, vol. 113, issue 11, 2894-2936

Abstract: We present a framework that can be used to assess the equilibrium impact of regulation on endogenous innovation with heterogeneous firms. We implement this model using French firm-level panel data, where there is a sharp increase in the burden of labor regulations on companies with 50 or more employees. Consistent with the model's qualitative predictions, we find a fall in the fraction of innovating firms just to the left of the regulatory threshold. Furthermore, we find a reduction in the innovation response of firms to demand shocks just below the threshold. Regulation reduces aggregate innovation by 5.7 percent.

JEL-codes: D22 K31 L11 L25 L51 O31 O34 (search for similar items in EconPapers)
Date: 2023
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Citations: View citations in EconPapers (4)

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DOI: 10.1257/aer.20210107

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