Please use this identifier to cite or link to this item:
Perotti, Enrico
Volpin, Paolo
Year of Publication: 
Series/Report no.: 
Tinbergen Institute Discussion Paper 07-006/2
Entry requires external finance, especially for less wealthy entrepreneurs, so poor investor protection limits competition. We model how incumbents lobby harder to block access to finance to entrants when politicians are less accountable to voters. In a broad cross-section of countries and industries, we find that (i) entry rates and the total number of producers are positively correlated with investor protection in financially dependent sectors and (ii) countries with more accountable political institutions have better investor protection and lower entry costs. We also find that investor protection is more critical to entry than financial market development. We measure political accountability as access to information. Newspaper readership has much more explanatory power than formal measures of democracies. The effect of diffusion of the press is not due to differences in education or in state ownership of the press. Thus newspaper readership appears to proxy for the degree of informed private scrutiny on political decisions.
Financial Development
Investor protection
Cost of Entry
Political Economy
Document Type: 
Working Paper

Files in This Item:
303.09 kB

Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.