Costs of Entrepreneurship
By Arnold Kling
Countries with heavier regulation of entry have higher corruption and larger unofficial economies, but not better quality of public or private goods. Countries with more democratic and limited governments have lighter regulation of entry. The evidence is inconsistent with public interest theories of regulation, but supports the public choice view that entry regulation benefits politicians and bureaucrats.
I pointed out the impact that this has on economic growth in this essay.
A public service ethic is something that we take for granted in the United States. If you want to open a restaurant, you may find the paperwork and regulations irritating. However, at least you can count on the public officials to process your application in a reasonable time without requiring a large bribe. In many other countries, the conduct of state employees ranges from routine petty corruption to organized extortion.
See also this paper by Leora Klapper, Luc Laeven and Raghuram Rajan on the effect of entry regulations.
For Discussion. What is the solution to the problem of government officials using business licensing procedures for extortionary purposes?