Title page

Contents

Abstract 3

1. Introduction 4

2. Institutional Context 8

3. Data 10

3.1. District-Level Outcome Variables 10

3.2. Local Regulatory Penetration 11

4. Empirical Strategy and Results 13

4.1. Empirical Strategy 13

4.2. First-Difference Estimates from the Economic Census 14

4.3. Difference-in-Difference Estimates from the Susenas 16

4.4. Validity of the Shift-Share Approach 18

4.5. Possible Confounders 19

5. Mechanisms 21

6. Conclusion 24

References 26

A. Online Appendix 38

A.1. Additional Figures 38

A.2. Additional tables 42

Table 1. Effect of Local Regulatory Penetration on Employment (Economic Census) 34

Table 2. Effect of Local Regulatory Penetration on Employment by Sector, Firm size (Economic Census) 34

Table 3. Effect of Local Regulatory Penetration on Firm size and Number of Firms (Economic Census) 35

Table 4. Effect of Local Regulatory Penetration on Employment (Susenas) 35

Table 5. Effect of Local Regulatory Penetration by Import/Export Shares 36

Table 6. Effect of Local Regulatory Penetration on Private and Public Expenditures and Wage Premia 36

Table 7. Effect of Local Regulatory Penetration on Immigration 37

Figure 1. Sectoral Composition of Local Regulatory Penetration (LRP) over Time 32

Figure 2. Change in LRP between 2006 and 2016 32

Figure 3. Effect of LRP on Employment 33

Table A1. Predictors of 5-Digit Product-Level Regulatory Penetration (Genthner and Kis-Katos 2019) 42

Table A2. Summary Statistics of First-Difference Sample 42

Table A3. Summary Statistics of District-Level Panel 43

Table A4. Sectoral Composition of LRP in Selected Years 43

Table A5. Summary Statistics of Districts per Product and Products per District 44

Table A6. Placebo Effect of Local Regulatory Penetration on Employment by Sector, Firm size (Economic Census) 44

Table A7. Standard Errors and Rejection Rate of H 0 : β = 0 at 5% Significance Level (Adão et al. 2019) 44

Table A8. Robustness Checks According to Shift-Share Literature 45

Table A9. Robustness Checks: Political-Economy Factors 45

Table A10. Robustness checks: Global Dynamics 46

Table A11. Robustness: Agglomeration Effects 47

Table A12. Robustness: Spatial Spillovers 47

Table A13. Robustness: Economy-wide Regulatory Penetration 48

Table A14. Disaggregating Manufacturing Sector Employment Gains (Medium/Large Firms) 48

Table A15. Disaggregating Service Sector Employment Gains 49

Figure A1. Working-age Population and Employment Rates by Sector (Susenas) 38

Figure A2. LRP Levels in 2001, 2007, 2010 and 2016 39

Figure A3. Density Distribution of Local Regulatory Penetration (LRP) 40

Figure A4. Sectoral Decomposition of the Impact of LRP on Employment 41