The sectoral allocation of labor differs considerably across developed economies, even in the presence of similar patterns of structural change. A general equilibrium model that captures the stylized facts of structural change is presented. In this framework, economy-wide product market regulations hinder the development of dynamic sectors such as service industries. This is consistent with the negative cross-country relation-ship between product market regulations and the service employment share discussed in the paper. Additionally, the model suggests that higher service prices and rents in regulated economies reduce labor supply, providing a rationale for the negative associa-tion between product market regulations and the employment rate previously found in the literature.

The 1998 reform of the Italian retail trade sector delegated the regulation of entry of large stores to the regional governments. We use the local variation in regulation to determine the effects of entry barriers on sectoral performance. We address the endogeneity of entry barriers through local fixed effects and using political variables as instruments. We also control for differences in trends and for area-wide shocks. We find that entry barriers are associated with substantially larger profit margins and lower productivity of incumbent firms. Liberalising entry has a positive effect on investment in ICT, increases employment and compresses labour costs in large shops. In areas with more stringent entry regulation, lower productivity coupled with larger margins results in higher consumer prices. Liberalisation is arguably the most strongly advocated policy for improving economic performance, particularly in many service activities, where legal barriers to competition are widespread. Indeed, there is a consensus that anti-competitive regulation is the main cause of the US–Europe difference in productivity growth in the service sector in the recent years.1 This article considers the effects of entry regulation in the Italian retail trade sector. In addition to gaining insights on the effects of regulation in services in general, studying retail trade is of interest in itself. This sector employs approx-

Are cities as politically polarized as states and countries? “No ” is the answer from our regression discontinuity design analysis, which shows that whether the mayor is a Democrat or a Republican does not affect the size of city government, the allocation of local public spending, or crime rates. However, there is a substantial incumbent effect for mayors. We investigate three mechanisms that could account for the striking lack of partisan impact at the local level, and find the most support for Tiebout competition among localities within metropolitan areas. I.

How does firm entry affect innovation incentives in incumbent firms? Micro data suggest that there is heterogeneity across industries. Specifically, incumbent productivity growth and patenting is positively correlated with lagged greenfield foreign firm entry in technologically advanced industries, but not in laggard industries. In this paper we provide evidence that these correlations arise from a causal effect predicted bySchumpeteriangrowththeory-thethreat of technologically advanced entry spurs innovation incentives in sectors close to the technology frontier, where successful innovation allows incumbents to survive the threat, but discourages innovation in laggard sectors, where the threat reduces incumbents ’ expected rents from innovating. We find that the empirical patterns hold using rich micro panel data for the United Kingdom (UK). We control for the endogeneity of entry by exploiting major European and UK policy reforms, and allow for endogeneity of additional factors. We complement the analysis for foreign entry with evidence for domestic entry and entry through imports.

We use a micro dataset that collects information across individuals, countries, and time to investigate the determinants of entrepreneurial activity in thirty-seven developed and developing nations. We focus both on individual characteristics and on countries ’ regulatory differences. We show that individual characteristics, such as gender, age, and status in the workforce are important determinants of entrepreneurship, and we also highlight the relevance of social networks, self-assessed skills, and attitudes toward risk. Moreover, we find that regulation plays a critical role, particularly for those individuals who become entrepreneurs to pursue a business opportunity. The individual characteristics that are impacted most by regulation are those measuring working status, social network, business skills, and attitudes toward risk. 1

In this paper, we study the distortions to industrial organization caused by entry regulation We take advantage of heterogeneity across industries in their natural barriers and growth opportunities to examine whether some industries are differentially affected in countries with high levels of entry regulation. First, we consider the effect of entry regulation on the (static) structure of industry. We find that in industries with high natural barriers to entry, as proxied by firm turnover in the U.S., entry regulation has little impact on the quantity and average size of firms in an industry. By contrast, in industries with low natural entry barriers, countries with high entry regulation have few, large firms, relative to less regulated economies. We find no relation between natural entry barriers and overall industry share of manufacturing, as a function of entry regulation. Second, utilizing firm-level data, we show that operating margins are relatively high in low barrier industries in high entry regulation countries (relative to high ‘natural ’ barrier industries). Finally, we examine the impact of entry regulation on industry dynamics, by analyzing the ability of industries to take advantage of shocks to growth opportunities, and find that

Firm start-ups

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A field experiment in Sri Lanka provides informal firms incentives to formalize. Information about the registration process and reimbursement of direct costs does not increase registration. Payments equivalent to one-half to one month (alternatively, 2 months) of the median firm’s profits leads to registration of around one-fifth (alternatively, one-half) of firms. Land ownership issues are the most common reason for not registering. Follow-up surveys 15 to 31 months later show higher mean profits, but largely in a few firms which grew rapidly. We find little evidence for other changes in behavior, but formalized firms express more trust in the state.

We analyze the impact of product market competition on unemployment and wages, and how this depends on labour market institutions. We use differential changes in regulations across OECD countries over the 1980s and 1990s to identify the effects of competition. We find that increased product market competition reduces unemployment, and that it does so more in countries with labour market institutions that increase worker bargaining power. The theoretical intuition is that both firms with market power and unions with bargaining power are constrained in their behaviour by the elasticity of demand in the product market. We also find that the effect of increased competition on real wages is beneficial to workers, but less so when they have high bargaining power. Intuitively, real wages increase through a drop in the general price level, but workers with bargaining power lose out somewhat from a reduction in the rents that they had previously captured.