creation rates. A one-unit increase in institutional regulations decreased employment growth by approximately 1.8 percentage points. This result highlights, that (at least) during economic downturns institutional regulations can act as severe barriers to job creation. Moreover, the overall level of corruption also decreased employment growth by approximately 2.8 percentage points, on average. These findings suggest that EU11 economies, characterized by unfriendly business environments, were highly vulnerable to job losses in times of acute macroeconomic shocks. Finally, firms operating in sectors with perceived stringent labor regulations exhibited negative employment growth rates (Figure 2, column 8). Accordingly, in industries with a one-unit larger labor regulation, job creation was reduced by 2.7 percentage points.

# The High-growth Firms in the EU11 Economies

**As highlighted in World Bank (2013), the fastest growing firms (the** Gazelles **) were rare, but essential for providing new jobs in the EU11 economies.**<sup>20, 21, 22</sup> The share of high-growth firms relative to all surveyed firms with positive employment growth was around 3.5 percent in the years prior to the global financial crisis. It was by far largest in Bulgaria, where approximately 7.5 percent of all net job creating firms were high-growth ones. High-growth firms were most important in Romania and Bulgaria with corresponding net job creation shares exceeding 12.5 percent. In addition to Hungary and Slovakia, the role of high-growth firms for overall job creation was negligible in the Czech Republic and Poland.

To unveil the probability of being a _Gazelle,_ simple probit regressions are estimated. The methodology is described in Box 2.

> 20 The analysis presented here partially relies on the OECD (2009) definition of the so-called _Gazelles_ . These are firms that are: (i) younger than 5 years; (ii) initially employ more than 10 workers; and (iii) experienced annual employment growth rates of (at least) 20 percent during 3 consecutive years. Given the focus of the current analysis on the distribution of high growth firms across different firm size and firm age cohorts, only the third part of the definition is applied (i.e. related to the 20 percent tri-annual growth performance). The measure of fast-growing firms, thus, is a dummy variable that takes on the value of 1 if a firm exhibits employment growth rates above 20 percent in each year from 2006 to 2008.

> 21 World Bank (2013) reveals evidence that net job creation in the region has typically been led by a handful of firms, many of them young firms. On average, in the Europe and Central Asia region, about 10–15 percent of all firms accounted for over two-thirds of net job creation in the years leading to the crisis. This pattern holds regardless of whether the entire enterprise sector is experiencing net job creation or net job destruction.

> 22 This finding is consistent with recent literature on the role of high growth firms for job creation. Henrikson and Johansson (2010), for example, provide a meta-study on the impact of Gazelles for overall job creation and confirm the few that this group of firms accounts for the vast majority of newly created firms.

12