European Journal of Law and Economics

, Volume 40, Issue 1, pp 49–74 | Cite as

Entrepreneurship and enforcement institutions: disaggregated evidence for Spain

  • Miguel García-Posada
  • Juan S. Mora-Sanguinetti
Article

Abstract

Entry of new firms, both in the form of entrepreneurs or corporations, fosters competition and productivity. Both the entry of firms and productivity have been low in the Spanish economy over the recent years. This paper analyzes the determinants of entry focusing on the role of the design and efficacy of enforcement institutions (the judicial system), a traditionally overlooked aspect. In order to do so, we examine disaggregated data at the local level in Spain. We find that higher judicial efficacy increases the entry rate of firms, while it has no effect on the exit rate. Crucially, that impact only occurs in the case of the entry rates of entrepreneurs, defined as self-employed, but not in the case of limited liability corporations. This finding may be explained by the fact that judicial (in)efficacy can be regarded as a fixed cost to be paid by agents that litigate. Hence, the economic activity of entrepreneurs -and specifically, their entry into the market- is expected to be more affected than that of larger firms.

Keywords

Entrepreneurship Judicial efficacy Barriers to entry 

JEL Classification

L26 M13 K40 R12 

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Copyright information

© Springer Science+Business Media New York 2014

Authors and Affiliations

  • Miguel García-Posada
    • 1
    • 2
  • Juan S. Mora-Sanguinetti
    • 1
  1. 1.Banco de España- EurosystemMadridSpain
  2. 2.Universidad Carlos III de MadridMadridSpain

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