Working Paper

Europe’s Revolving Doors: Import Competition and Endogenous Firm Entry Institutions

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The close relationship between politics and enterprises made the revolving door wide
open and reinforced business influence on political decisions. The paper analyses relationship
between firm entry institutions and import competition inside the EU. Though
there is a clear tendency for entry and startup costs to decrease over time and particularly
in space, I challenge the view that greater openness to trade automatically leads to
improved firm entry institutions. My model enables calculating business entry impediments
whereas lobbying game produces structural estimates of the counterfactual levels
of trade, prices and earnings had no business obstacles existed. Conditions for active
entry barriers are laid down in terms of extensive margin and asymmetries in technology
and trade costs. Importantly, the model demonstrates that startling differences
in firm regulation can be explained resorting to relative gains and losses accruing in a
fully trading network as is the EU. More generally, understanding factors which affect
imports is crucial for any model seeking to uncover ex ante welfare effects of trade.


Povilas Lastauskas


Publication Date
JEL Classification
C31, E02, F12, F14, F15, F55