Do enterprises follow market potential? Evidence from the liberalisation of cross border shopping in the Austrian Czech border region.

Description

We use the large and unforeseen shock of the fall of the Iron Curtain to identify the impact of changes in market access and competition on new enterprise formation in the retail trade markets of the Austrian and Czech border region. The results show a substantial impact on new enterprise creation among private-sector retailers in the Czech Republic. A one standard deviation increase in the market potential located in Austria increased the number of retailers per 100 inhabitants by 2.91 in the Czech border municipalities by 1997. A one standard deviation increase in our measure of competition reduced market entry by 2.85 enterprises per 100 inhabitants. By contrast, we find little evidence of strong adverse effects on creating new retail enterprises in the Austrian border municipalities.

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