Many scholars have worried that regulation deters entrepreneurship because
it increases the cost of entry, reduces innovation in the regulated industry, and benets
large rms because they can overcome the costs of complying with regulations more
easily than smaller rms. Using novel data on the extent of US federal regulations by
industry and data on rm births and employment from the Statistics of US Businesses,
we run xed effects regressions to show that more-regulated industries experienced
fewer new rm births and slower employment growth in the period 1998–2011. Large
rms may even successfully lobby government ofcials to increase regulations to raise
their smaller rivals’ costs. We also nd that regulations inhibit employment growth in
all rms and that large rms are less likely to exit a heavily regulated industry than
small rms.
Categories: PaperPublications