Business Dynamism

What is Business Dynamism?

Business Dynamism is a vital process to continued productivity and sustained economic growth. Typically, it is measured by the rate at which firms enter the market, grow, shrink, and then leave the market. When studying the impact of federal regulations on business activity, some researchers and economists have reached contradicting conclusions. Some researchers perceive negative relations between regulatory accumulation and entrepreneurship. However, while others have failed to find any noteworthy relationship between the two when measuring metrics common to dynamism, RegData may be able to provide researchers with the data necessary to understand this long-standing question.

The QuantGov team has two publications focused on the effects of business dynamism on entrepreneurship and firm size. The first working paper is called Regulation, Entrepreneurship, and Dynamism, in which the authors examined the findings of two studies that utilize comprehensive metrics of U.S. federal regulations found by RegData. In both studies, RegData is used to estimate the impact of federal regulation on private business activity, with both studies coming to opposing results. The researchers demonstrate that despite the contradictory results of both studies, the results are actually congruous and expected.

The second publication is Regulation, Entrepreneurship, and Firm Size, in which researchers investigate the causality between regulatory growth and the burden it places on small businesses in comparison to large ones. To conduct this study, the researchers used panel data from Regdata 3.0 and exploited variations across industries over time. They did so with the purpose of estimating the relationship between regulatory growth and increases in the amount of small to large firms.

Take a look at both publications below for a better understanding of how using RegData can help you better understand the effects of business dynamism on the economy.

+ Regulation, Entrepreneurship, and Dynamism

BY: Dustin Chambers, Patrick McLaughlin, Oliver Sherouse
DATE: November 6, 2020

Abstract: Recent empirical studies estimating the impact of US federal regulations on domestic business activity have reached seemingly contradictory conclusions. When measuring business activity with traditional measures of entrepreneurship (i.e., firm startups and job formation), some researchers observe a negative association between regulatory accumulation and entrepreneurship. Others, however, fail to find a significant association between regulatory accumulation and startup business activity when measuring business activity with metrics common to the dynamism literature. After ruling out differences in unit of measure (i.e., firms vs. establishments), industry aggregation (i.e., three- vs. four-digit NAICS code classification), and measurement of regulation (i.e., RegData 2.0 vs. 2.1), we demonstrate that methodological differences in the measurement of entrepreneurship are responsible for the conflicting results. However, when we allow the impact of regulation on the startup rate to vary across industries and over time, we empirically demonstrate that the decline in dynamism measured over the sample period is associated with higher regulation.
+ Regulation, Entrepreneurship, and Firm Size

BY: Dustin Chambers, Patrick McLaughlin, Tyler Richards
DATE: April 26, 2018

Abstract: We investigate whether regulatory growth disproportionately burdens small businesses relative to large businesses. Using panel data from RegData 3.0 and exploiting variation across industries over time, we empirically estimate the relationship between regulatory growth and growth in the number of small and large firms. Controlling for other factors, we find that a 10 percent increase in regulatory restrictions on a particular industry is associated with a reduction in the total number of small firms within that industry by about 0.5 percent, while simultaneously having no statistically significant association with the number of large firms in that industry. We also find that these magnitudes are amplified when this regulatory growth follows previous years of high regulatory growth, implying that unrelenting regulatory increases harm small businesses at an escalating rate.