Investor Protection And Entry
Entry requires external finance, especially for less wealthy entrepreneurs, so poor investor protection limits competition. The authors 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, they find that entry rates and the total number of producers are positively correlated with investor protection in financially dependent sectors and countries with more accountable political institutions have better investor protection and lower entry costs. They also find that investor protection is more critical to entry than financial market development.