Edited by David B. Audretsch, Oliver Falck, Stephan Heblich and Adam Lederer
Chapter 7: Entry Regulation and Firm Entry: Evidence from German Reunification
Susanne Prantl INTRODUCTION Regulation of firm entry and entry into self-employment is widespread across countries and industries. Many of the relevant rules and laws worldwide have been changed since the beginning of the twenty-first century. Most of the implemented reforms were aimed at increasing entry and competition in order to foster technological progress, economic growth and social welfare (see, e.g., World Bank, 2008, 2009). Concomitantly with these reforms, the empirical literature on the effects of entry regulation has started to grow. This chapter provides first empirical evidence on the effects of the entry regulation in the German Limited Liability Company Law on firm entry in general and sustained entry, that is the entry of firms that survive for several years after market entry. Identification relies on a substantial natural experiment in entry regulation accompanying German reunification. This empirical investigation is presented along with a survey of recent, methodologically similar studies of the consequences of the entry regulation in the German Trade and Crafts Code on entry into self-employment, sustained entry and the employment that long-living entrants attain several years after market entry. Germany after reunification is well suited for investigating entry regulation due to the exploitable natural experiment in entry regulation and its strict regulatory setting. The German Limited Liability Company Law implies an expensive and complex incorporation process for limited liability companies; in particular during the 1990s, the observation period of the subsequent empirical analyses, this involved a substantial statutory minimum capital requirement. Sizable statutory minimum capital requirements were...
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