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The Role of Regulation and Regional Government Quality for High Growth Firms: The Good, the Bad, and the Ugly
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The Role of Regulation and Regional Government Quality for High Growth Firms: The Good, the Bad, and the Ugly

Author

Listed:
  • Sara Amoroso

    (DIW Berlin)

  • Benedikt Herrmann

    (Joint Research Centre, European Commission)

  • Alexander S. Kritikos

    (DIW Berlin, CEPA, University of Potsdam, IZA, IAB)

Abstract

High growth firms (HGFs) are important for job creation and considered to be precursors of economic growth. We investigate how formal institutions, like product- and labor-market regulations, as well as the quality of regional governments that implement these regulations, affect HGF development across European regions. Using data from Eurostat, OECD, WEF, and Gothenburg University, we show that both regulatory stringency and the quality of the regional government influence the regional shares of HGFs. More importantly, we find that the effect of labor- and product-market regulations ultimately depends on the quality of regional governments: in regions with high quality of government, the share of HGFs is neither affected by the level of product market regulation, nor by more or less flexibility in hiring and firing practices. Our findings contribute to the debate on the effects of regulations by showing that regulations are not, per se, “good, bad, and ugly”, rather their impact depends on the efficiency of regional governments. Our paper offers important building blocks to develop tailored policy measures that may influence the development of HGFs in a region.

Suggested Citation

  • Sara Amoroso & Benedikt Herrmann & Alexander S. Kritikos, 2023. "The Role of Regulation and Regional Government Quality for High Growth Firms: The Good, the Bad, and the Ugly," CEPA Discussion Papers 71, Center for Economic Policy Analysis.
    • Handle: RePEc:pot:cepadp:71
    DOI: 10.25932/publishup-61277
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    More about this item

    Keywords

    High growth firms; Regulation; Quality of regional governments; Regions;
    All these keywords.

    JEL classification:

    • L50 - Industrial Organization - - Regulation and Industrial Policy - - - General
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance
    • H11 - Public Economics - - Structure and Scope of Government - - - Structure and Scope of Government
    • O43 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Institutions and Growth
    • R11 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Regional Economic Activity: Growth, Development, Environmental Issues, and Changes
    • R50 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Regional Government Analysis - - - General

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