1. ¹Department of Business Economics, Universitat Autonoma de Barcelona, Bellaterra, Barcelona, Spain
2. ²Warwick Business School, University of Warwick, Coventry, UK

Correspondence: Joan-Lluis Capelleras, Department Economia de l'Empresa, Universitat Autonoma de Barcelona, Bellaterra (Cerdanyola del Valles) 08193, Spain. Tel: +34 935 814 297; Fax: +34 935 812 555; E-mail: joanlluis.capelleras@uab.es

Received 4 February 2006; Revised 16 August 2007; Accepted 27 August 2007; Published online 29 November 2007.

Abstract

We test two alternative perspectives on the start-up size and subsequent growth of new firms in a heavily regulated (HR) economy and a lightly regulated (LR) economy. The first argues that, in an HR economy, there will be fewer new firms, and those that do start will be larger than those in an LR economy, but they will grow more slowly. A second perspective is that regulation does not influence the scale of entrepreneurship – merely its distribution between that which is registered and that which is not registered. Using parallel datasets for HR Spain and LR Britain we find some support for both perspectives. Specifically we find that registered new firms in Britain do start smaller than in Spain and do grow faster. However, when both registered and unregistered firms are included, these differences disappear.