Productivity and entry regulation: evidence from the universe of firms

Andrea Cintolesi (), Sauro Mocetti and Giacomo Roma ()
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Andrea Cintolesi: Bank of Italy
Giacomo Roma: Bank of Italy

No 1455, Temi di discussione (Economic working papers) from Bank of Italy, Economic Research and International Relations Area

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.

Keywords: regulation; red tape; occupational licensing; labour productivity; firm entry; allocative efficiency (search for similar items in EconPapers)
JEL-codes: D24 J44 K20 L20 L51 L80 L90 O47 (search for similar items in EconPapers)
Date: 2024-06
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