This paper studies the effects of regulation on economic growth and the relative size of the informal sector in a large sample of industrial and developing countries. Along with firm dynamics, informality is an important channel through which regulation affects macroeconomic performance and economic growth in particular. The paper concludes that a heavier regulatory burden --particularly in product and labor markets--reduces growth and induces informality. These effects are, however, mitigated as the overall institutional framework improves.
Regulation is purportedly enacted to serve specific social purposes. In reality, however, it follows a more complex political economy process, where legitimate social goals are mixed with the objectives of particular interest groups. Whatever its justification and objectives, regulation can have potentially significant macroeconomic consequences, by helping or hampering the dynamics of economic restructuring and resource reallocation that underlie the growth process. This paper provides an empirical analysis of the macroeconomic impact of regulation. It first characterizes the stylized facts on regulation across the world, using a set of newly constructed, comprehensive indicators of regulation in a large number of countries in the 1990s. Using these indicators, the paper studies the effects of regulation on economic growth and macroeconomic volatility employing cross-country regression analysis. In particular, the paper considers whether the effects of regulation are affected by the country's level of institutional development. Finally, the analysis controls for the likely endogeneity of regulation with respect to macroeconomic performance. The paper concludes that a heavier regulatory burden reduces growth and increases volatility, although these effects are smaller the higher the quality of the overall institutional framework.
We report on a project to explore empirical patterns in risk, shocks and risk management using recent household surveys with risk modules from 16 different developing countries. Natural disasters, health shocks, economic shocks, and asset loss are the most commonly reported types of shocks and, especially for the poor, often result in 'bad' coping responses that may perpetuate vulnerability. The information culled from these survey modules falls short of expectations in several ways.
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