Entry Deregulation, Market Turnover, and Efficiency : China’s Business Registration Reform

Although entry regulation is ubiquitous across countries, comprehensive evaluations on the broad impacts of such regulations on firm dynamics and productivity are lacking. We address the key identification challenge of policy endogeneity by leveraging the staggered implementation of a pilot program of entry deregulation in Guangdong, China. Using detailed data on business registrations, firms’ annual reports, and field surveys, our analysis shows that the reform increased firm entry by 25% and firm exit by 8.7% in the manufacturing sector. The productivity of post-reform entrants was 1.1% higher than the productivity of pre-reform entrants, likely due to the easing of the financial constraints upon entry and the increased intensity of market competition. A back-of-the-envelope calculation suggests that the nationwide reform following the pilot program increased employment by at least 0.7 million and generated more than ¥35 billion of value added annually