Reforms in Business Regulation: Evidence from Russia

Abstract

What determines the enforcement of reform of business regulation? What are the outcomes of such reform? We address these questions using an episode of a drastic reform in Russia between 2001 and 2004 which liberalized registration, licensing, and inspections. Based on the analysis of micro-level panel data on regulatory burden, we find that: 1) On average, the reform reduced the administrative costs of firms; but, the progress of reform had a substantial geographical variation. 2) The enforcement of deregulation reform was better in regions with a transparent government, low corrup-tion, better access of the public to independent media sources, a powerful industrial lobby, and stronger fiscal autonomy. 3) Using the exogenous variation in regulation generated by the interaction of reform and its institutional determinants, we find a substantial positive effect of regulatory reform on net entry into the official sector and small business employment and no effect on pollution and public health. The results support public choice theory of the nature of regulation and are inconsistent with the predictions of public interest theory.