{
  "title": "What is the Impact of Increased Business Competition?",
  "publication": "IMF Working Papers, December 13, 2019",
  "sourceUrl": "https://www.imf.org/en/publications/wp/issues/2019/12/13/what-is-the-impact-of-increased-business-competition-48852",
  "canonical": "https://www.imf.org/en/publications/wp/issues/2019/12/13/what-is-the-impact-of-increased-business-competition-48852",
  "overlayPath": "/en/publications/wp/issues/2019/12/13/what-is-the-impact-of-increased-business-competition-48852/index.md",
  "summary": "This paper studies the macroeconomic effect and underlying firm-level transmission channels of a reduction in business entry costs. We provide novel evidence on the response of firms' entry, exit, and employment decisions.",
  "sections": [
    {
      "heading": "Summary of research question and approach",
      "content": "- Research objective: Study the macroeconomic effect and underlying firm-level transmission channels of a reduction in business entry costs.\n- Empirical strategy: Use a natural experiment — a reform in Portugal that reduced entry time and costs — exploiting the staggered implementation of the policy across Portuguese municipalities.\n- Data focus: Firms' entry, exit, and employment decisions."
    },
    {
      "heading": "Key empirical findings",
      "content": "- Entry and employment effects:\n  - The reform increased local entry by 25% per year in its first four years of implementation.\n  - The reform increased local employment by 4.8% per year in its first four years of implementation.\n- Source of employment gains:\n  - Around 60% of the increase in employment came from incumbent firms expanding their size.\n  - Most of the incumbent expansion occurred among the most productive firms.\n- Heterogeneity:\n  - The response across incumbent firms was heterogeneous, with the most productive firms driving the bulk of expansion."
    },
    {
      "heading": "Theoretical implications and modeling results",
      "content": "- Standard models:\n  - Standard models of firm dynamics that assume a constant elasticity of substitution are inconsistent with the observed expansionary and heterogeneous response across incumbent firms.\n- Alternative model:\n  - A model with heterogeneous firms and variable markups can account for the facts: the most productive firms face a lower demand elasticity and expand their employment in response to increased entry."
    },
    {
      "heading": "Subjects and keywords (as listed)",
      "content": "- Subjects: Demand elasticity, Economic theory, Employment, Labor, Labor demand, Labor supply, Production, Productivity\n- Keywords: Demand elasticity, Employment, Europe, firms drive, idiosyncratic productivity, incumbents firm, Labor demand, Labor supply, math display, municipality Count firm, pre-existing firm, price level, Productivity, productivity distribution, WP\n\n---\n\n Content in this bundle\n\n- Working Paper\n  - Working Paper (Markdown version){rel=\"alternate\" type=\"text/markdown\"}\n  - Working Paper (PDF){rel=\"external\" type=\"application/pdf\"}\n\n---\n\nSource: https://www.imf.org/en/publications/wp/issues/2019/12/13/what-is-the-impact-of-increased-business-competition-48852"
    }
  ],
  "bullets": [
    "[Markdown version](/en/publications/wp/issues/2019/12/13/what-is-the-impact-of-increased-business-competition-48852/index.md)",
    "[Structured JSON version](/en/publications/wp/issues/2019/12/13/what-is-the-impact-of-increased-business-competition-48852/index.json)",
    "[Bundle manifest](/en/publications/wp/issues/2019/12/13/what-is-the-impact-of-increased-business-competition-48852/bundle-manifest.json)",
    "Authors: Sónia Félix, Chiara Maggi",
    "Published: December 13, 2019",
    "Series: IMF Working Papers",
    "DOI: https://doi.org/10.5089/9781513521510.001",
    "Research objective: Study the macroeconomic effect and underlying firm-level transmission channels of a reduction in business entry costs.",
    "Empirical strategy: Use a natural experiment — a reform in Portugal that reduced entry time and costs — exploiting the staggered implementation of the policy across Portuguese municipalities.",
    "Data focus: Firms' entry, exit, and employment decisions.",
    "Entry and employment effects:",
    "Source of employment gains:",
    "Heterogeneity:",
    "Standard models:",
    "Alternative model:",
    "Subjects: Demand elasticity, Economic theory, Employment, Labor, Labor demand, Labor supply, Production, Productivity",
    "Keywords: Demand elasticity, Employment, Europe, firms drive, idiosyncratic productivity, incumbents firm, Labor demand, Labor supply, math display, municipality Count firm, pre-existing firm, price level, Productivity, productivity distribution, WP",
    "**Working Paper**"
  ],
  "related": [
    {
      "title": "Working Paper",
      "role": "paper",
      "sourceUrl": "https://www.imf.org/-/media/files/publications/wp/2019/wpiea2019276-print-pdf.pdf",
      "summary": {
        "path": "/-/media/files/publications/wp/2019/wpiea2019276-print-pdf.pdf.md",
        "mime": "text/markdown"
      },
      "binary": {
        "path": "/-/media/files/publications/wp/2019/wpiea2019276-print-pdf.pdf",
        "mime": "application/pdf"
      }
    }
  ],
  "alternates": {
    "markdown": "/en/publications/wp/issues/2019/12/13/what-is-the-impact-of-increased-business-competition-48852/index.md",
    "json": "/en/publications/wp/issues/2019/12/13/what-is-the-impact-of-increased-business-competition-48852/index.json",
    "bundleManifest": "/en/publications/wp/issues/2019/12/13/what-is-the-impact-of-increased-business-competition-48852/bundle-manifest.json"
  },
  "generatedAtUtc": "2026-09-18T16:18:43.746Z"
}