Culture and the Regulation of Entry

Abstract

Does culture affect the manner in which a society regulates the entry of new firms? Our results suggest it does. We find more individualistic countries regulate entry more lightly. This result is robust to different measures of individualism and to a variety of controls for cultural values and exogenous determinants of institutional quality. In addition, we investigate how culture matters by presenting evidence of significant interactions between individualism and formal legal and political institutions. In particular, we find that individualism has a greater impact on entry regulation in societies with democratic political institutions or a common law tradition. This outcome is consistent with the idea that culture influences social preference for regulation, and political and legal institutions determine the degree to which those preferences are expressed as policy outcomes.

Keywords: Culture, Regulation of Entry, Individualism, Legal Origins, Democracy, Institutions, Informal Institutions

JEL Classification: L51, Z10, D02, K2