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Financial Development, Labor and Market Regulations and Growth

Raquel Fonseca () and Natalia Utrero-González ()

No 05-05, Documents de recherche from Centre d'Études des Politiques Économiques (EPEE), Université d'Evry Val d'Essonne

Abstract: This paper investigates the importance that market regulation and financial imperfections have on firm growth. We analyse institutions af- fecting labor market as Employment Protection Laws (EP) and Product Market Regulation (PM). We show that together with the beneficial ef- fects of financial development, a firm will get less financing, and thus invest less, in a weak financial market (finance effect), the strictness of product and labor market regulations also affect firm growth (labor effect). In particular, we show that the stricter the rules the more detrimental the influence on growth in sectoral value added for a large number of coun- tries. We also show that the labor effect overcomes the positive finance effect.

Keywords: Financial development; labor and product market institutions; growth (search for similar items in EconPapers)
JEL-codes: G2 G32 J32 L10 (search for similar items in EconPapers)
Date: 2005
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Working Paper: Financial Development, Labor and Market Regulations and Growth (2005) Downloads
Working Paper: Financial Development, Labor and Market Regulations and Growth (2005) Downloads
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