Empirical Economics

, Volume 47, Issue 3, pp 1067–1101 | Cite as

Entry regulation and entrepreneurship: a natural experiment in German craftsmanship

  • Davud Rostam-AfscharEmail author


This paper uses the 2004 amendment to the German Trade and Crafts Code as a natural experiment for assessing the causal effects of this reform on the probabilities of being self-employed and of transition into and out of self-employment. This is achieved by using repeated cross-sections (2002–2009) of German microcensus data. I apply the difference-in-differences technique for three groups of craftsmen which were subject to different intensities of treatment. The results show that the complete exemption from the educational entry requirement has fostered self-employment significantly by substantially increasing the entry probabilities, while exit rates have remained unaffected. I find similar, though weaker relative effects for the treatment groups that were subject to a reduction of entry costs or a partial exemption from the entry requirements. Moreover, I consider effect heterogeneity within each of the treatment groups with respect to gender and vocational training, and show that the deregulation of entry requirements has been most effective for untrained workers.


Entrepreneurship Regulation Firm entry Natural experiment Craftsmanship 

JEL Classification

L51 J24 I28 M13 



I thank the editor, two anonymous referees, Viktor Steiner, Susanne Prantl, Alexandra Spitz-Oener, Frank Fossen, Justin Davies, and participants at the 67th European Meeting of the Econometric Society in 2013, at the annual meeting of the Verein für Socialpolitik in 2012, the 4th Ruhr Graduate School Doctoral Conference in Economics in 2011, the BeNA Leibniz Seminar on Labor Research in 2010, and the joint seminar of DIW Berlin and the Freie Universität of Berlin in 2010 and 2012 for valuable comments and suggestions. Financial support from the German Research Foundation (DFG) for the project “Tax Policy and Entrepreneurial Choice” (STE 681/7-1) is gratefully acknowledged. I thank the German Confederation of Skilled Crafts (ZDH) and the Berufsverband unabhängiger Handwerkerinnen und Handwerker (BUH) for insightful discussions. This paper is a substantial extension of the Diploma thesis of the author and has been circulated in an earlier version under the title “Entry Regulation and Entrepreneurship—Empirical Evidence from a German Natural Experiment”. The usual disclaimer applies.


  1. Aghion P, Blundell R, Griffith R, Howitt P, Prantl S (2009) The effects of entry on incumbent innovation and productivity. Rev Econ Stat 91(1):20–32CrossRefGoogle Scholar
  2. Ardagna S, Lusardi A (2009) Where does regulation hurt? Evidence from new businesses across countries. NBER Working Paper No. 14747Google Scholar
  3. Ardagna S, Lusardi A (2010) Explaining international differences in entrepreneurship: the role of individual characteristics and regulatory constraints. In: Lerner J, Schoar A (eds) International differences in entrepreneurship, NBER Conference Report, University of Chicago Press, Chicago and London, pp 17–62Google Scholar
  4. Baumgartner HJ, Caliendo M, Steiner V (2006) Existenzgründungsförderung für Arbeitslose: Erste Evaluationsergebnisse für Deutschland. Vierteljahrs. Wirtschaftsforschung 75(3):32–48CrossRefGoogle Scholar
  5. Bertrand M, Kramarz F (2002) Does entry regulation hinder job creation? Evidence from the French retail industry. Q J Econ 117(4):1369–1413CrossRefGoogle Scholar
  6. Bertrand M, Schoar A, Thesmar D (2007) Banking deregulation and industry structure: evidence from the French banking reforms of 1985. J Finance 62(2):597–628CrossRefGoogle Scholar
  7. Blanchard O, Giavazzi F (2003) Macroeconomic effects of regulation and deregulation in goods and labor markets. Q J Econ 118(3):879–907CrossRefGoogle Scholar
  8. Blanchflower DG, Oswald AJ (1998) What makes an entrepreneur? J Lab Econ 16(1):26–60CrossRefGoogle Scholar
  9. Blundell R, Costa Dias M (2009) Alternative approaches to evaluation in empirical microeconomics. J Hum Res 44(3):565–640Google Scholar
  10. Branstetter LG, Lima F, Taylor LJ, Venâncio A (2013) Do entry regulations deter entrepreneurship and job creation? Evidence from recent reforms in Portugal. Econ J. doi: 10.1111/ecoj.12044
  11. Bruhn M (2011) License to sell: the effect of business registration reform on entrepreneurial activity in Mexico. Rev Econ Stat 93(1):382–386CrossRefGoogle Scholar
  12. Caliendo M, Künn S (2011) Start-up subsidies for the unemployed: long-term evidence and effect heterogeneity. J Public Econ 95(3–4):311–331CrossRefGoogle Scholar
  13. Caliendo M, Steiner V (2005) Aktive Arbeitsmarktpolitik in Deutschland: Bestandsaufnahme und Bewertung der mikroökonomischen Evaluationsergebnisse. Z Arb Markt Forsch 38(2–3):396–418Google Scholar
  14. Cetorelli N, Strahan PE (2006) Finance as a barrier to entry: bank competition and industry structure in local U.S. markets. J Finance 61(1):437–461CrossRefGoogle Scholar
  15. Ciccone A, Papaioannou E (2007) Red tape and delayed entry. J Eur Econ Assoc 5(2–3):444–458CrossRefGoogle Scholar
  16. Djankov S, La Porta R, Lopez-De-Silanes F, Shleifer A (2002) The regulation of entry. Q J Econ 117(1):1–37CrossRefGoogle Scholar
  17. Evans DS, Jovanovic B (1989) An estimated model of entrepreneurial choice under liquidity constraints. J Polit Econ 97(4):808–827CrossRefGoogle Scholar
  18. Fossen FM (2011) The private equity premium puzzle revisited - New evidence on the role of heterogeneous risk attitudes. Economica 78(312):656–675CrossRefGoogle Scholar
  19. German Confederation of Skilled Crafts (2003) Stellungnahme zum Themenkatalog zur öffentlichen Anhörung des Ausschusses für Wirtschaft und Arbeit des Deutschen Bundestages, BerlinGoogle Scholar
  20. German Confederation of Skilled Crafts (1991) Marktöffnung und Wettbewerb. Gutachten der unabhängigen Expertenkommission zum Abbau marktwidriger Regulierungen, StuttgartGoogle Scholar
  21. German Monopolies Commission (1998) Marktöffnung umfassend verwirklichen. Hauptgutachten der Monopolkommission, XII (1996/97), Baden-BadenGoogle Scholar
  22. German Monopolies Commission (2002) Reform der Handwerksordnung. Sondergutachten der Monopolkommission, 31, BonnGoogle Scholar
  23. Holtz-Eakin D, Rosen HS (2005) Cash constraints and business start-ups: Deutschmarks versus Dollars. Contrib Econ Anal Policy 4(1):1–26Google Scholar
  24. Hurst E, Lusardi A (2004) Liquidity constraints, household wealth, and entrepreneurship. J Polit Econ 112(2):319–347CrossRefGoogle Scholar
  25. Kerr WR, Nanda R (2009) Democratizing entry: banking deregulations, financing constraints, and entrepreneurship. J Finan Econ 94(1):124–149CrossRefGoogle Scholar
  26. King G, Zeng L (2001) Logistic regression in rare events data. Polit Anal 9(2):137–163CrossRefGoogle Scholar
  27. Klapper L, Laeven L, Rajan R (2006) Entry regulation as a barrier to entrepreneurship. J Finan Econ 82(3):591–629CrossRefGoogle Scholar
  28. Meyer BD (1995) Natural and quasi-experiments in economics. J Bus Econ Stat 13(2):151–161Google Scholar
  29. Müller K (2006) Erste Auswirkungen der Novellierung der Handwerksordnung von 2004 Göttinger handwerkswirtschaftliche Studien 74. Mecke Druck und Verlag, DuderstadtGoogle Scholar
  30. Müller K (2008) Auswirkungen der EU-Osterweiterung auf das deutsche Handwerk im Spiegel erster empirischer Erhebungen. In: Bizer K (ed) EU-Osterweiterung: Erste Zwischenbilanz für das Handwerk. Mecke Druck und Verlag, DuderstadtGoogle Scholar
  31. Prantl S (2012) The impact of firm entry regulation on long-living entrants. Small Bus Econ 39(1):61–76CrossRefGoogle Scholar
  32. Prantl S, Spitz-Oener A (2009) How does entry regulation influence entry into self-employment and occupational mobility? Econ Transit 17(4):769–802CrossRefGoogle Scholar
  33. Puhani PA (2012) The treatment effect, the cross difference, and the interaction term in nonlinear ‘difference-in-differences’ models. Econ Lett 115(1):85–87CrossRefGoogle Scholar
  34. Rostam-Afschar D (2010) Entry regulation and entrepreneurship: empirical evidence from a German natural experiment. DIW Berlin Discussion Paper No. 1065Google Scholar
  35. Sadun R (2008) Does planning regulation protect independent retailers? CEP Discussion Paper No. 888Google Scholar
  36. van Stel A, Storey D, Thurik A (2007) The effect of business regulations on nascent and young business entrepreneurship. Small Bus Econ 28(2–3):171–186CrossRefGoogle Scholar
  37. Viviano E (2008) Entry regulations and labour market outcomes: evidence from the Italian retail trade sector. Lab Econ 15(6):1200–1222CrossRefGoogle Scholar

Copyright information

© Springer-Verlag Berlin Heidelberg 2013

Authors and Affiliations

  1. 1.Department of Public EconomicsGerman Institute for Economic Research (DIW Berlin)BerlinGermany
  2. 2.Department of EconomicsFreie Universität BerlinBerlinGermany

Personalised recommendations