Regulation, Entrepreneurship, and Dynamism

Recent empirical studies estimating the impact of US federal regulations on domestic business activity have reached seemingly contradictory conclusions. When measuring business activity with traditional measures of entrepreneurship (i.e., firm startups and job formation), some researchers observe a negative association between regulatory accumulation and entrepreneurship. Others, however, fail to find a significant association between regulatory accumulation and startup business activity when measuring business activity with metrics common to the dynamism literature. After ruling out differences in unit of measure (i.e., firms vs. establishments), industry aggregation (i.e., three- vs. four-digit NAICS code classification), and measurement of regulation (i.e., RegData 2.0 vs. 2.1), we demonstrate that methodological differences in the measurement of entrepreneurship are responsible for the conflicting results. However, when we allow the impact of regulation on the startup rate to vary across industries and over time, we empirically demonstrate that the decline in dynamism measured over the sample period is associated with higher regulation.

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