Why Local Regulation and Credit Access Decide Where Businesses Succeed or Fail

The OECD finds that businesses thrive or struggle largely because of where they are located, with regional differences in regulation, administration and access to finance shaping firm creation, growth and productivity far more than national averages suggest. By simplifying local rules, digitalising government services and improving access to finance, especially for SMEs, governments can unlock growth and reduce regional economic gaps.

Prepared by the OECD Centre for Entrepreneurship, SMEs, Regions and Cities in collaboration with the OECD Regional Development Policy Committee and the Committee on SMEs and Entrepreneurship, and supported by the European Union, Boosting Business in Regions starts from a simple but powerful idea: where a firm is located within a country strongly shapes its chances of success. National rules may look the same on paper, but regional differences in administration, regulation and finance create very different realities for businesses on the ground. These differences matter most for small and medium-sized enterprises, which depend heavily on local institutions and lack the resources to navigate complex systems.

The report shows that large gaps in productivity and firm growth within countries are not accidental. They are closely linked to how efficiently regional governments manage regulation, how clearly rules are enforced, and how easily firms can access finance in their local area.

Administrative Delays That Hold Firms Back

One of the clearest messages of the report is that slow and complex administrative procedures discourage entrepreneurship. In about a quarter of large OECD regions, firms wait more than two months to obtain an operating licence. These regions consistently see fewer new firms being created than regions where licences are issued more quickly. Delays increase costs before businesses even begin operating and discourage potential entrepreneurs from entering the market.

Interestingly, firms in big cities often wait longer for licences than those in rural regions, yet they complain less. The reason is simple: urban firms are usually larger and have access to lawyers, consultants and business services that help them manage compliance. Smaller firms in rural and less urban regions do not have these advantages, making even simpler procedures feel more burdensome.

Land Rules, Housing and Local Growth

Land-use regulation is another major barrier to business growth. The report shows that responsibilities for land regulation are often fragmented across national, regional and local governments, leading to confusion, delays and inconsistent decisions. Strict zoning rules limit where businesses can operate and raise costs for new entrants, protecting existing firms from competition.

These rules also affect housing supply. In productive regions, restrictive land-use policies push up housing prices, making it harder for workers to move where jobs are available. As a result, firms struggle to find skilled labour and cannot expand easily. The OECD finds a strong link between regions where firms face problems accessing land and regions where they struggle to hire qualified workers, highlighting how planning rules shape entire regional economies.

Digital Government and Cleaner Institutions

Rather than removing regulation, the OECD argues for making it simpler and smarter. Digital tools play a central role. One-stop shops that bring together information on business registration, licences and taxes make it easier for entrepreneurs to understand what is required of them. More advanced systems allow firms to complete procedures online, saving time and reducing uncertainty.

The “once-only” principle, where firms provide information to the government just once and have it reused across services, is especially effective. It reduces paperwork, cuts errors and lowers compliance costs, particularly for small firms in regions with fewer support services.

These reforms also help fight corruption. In half of OECD regions, more than one in ten firms see corruption as a serious obstacle. Complex rules and discretionary enforcement increase opportunities for informal payments. Clear rules, digital tracking and automation reduce these risks, increase transparency and build trust in public institutions.

Access to Finance Is a Regional Issue Too

The second major focus of the report is access to finance. In many OECD regions, firms, especially SMEs, struggle to obtain loans. In half of the regions studied, at least ten percent of firms report serious financing difficulties, and in some regions the share is much higher. These problems are closely linked to the structure of local banking markets.

Regions with highly concentrated banking sectors, dominated by a few large banks, tend to have worse access to finance, slower productivity growth and fewer jobs. Physical proximity still matters: lending to small firms relies on local knowledge, and firms in remote regions face thinner banking networks. Online-only banks have not yet filled this gap.

Governments respond with tools such as public credit guarantees and public development banks, which help reduce risk for lenders and expand credit in underserved regions. When well designed, these policies improve access to finance without crowding out private banks.

A Clear Message for Policymakers

The report’s conclusion is straightforward. Boosting business in regions does not require sweeping national reforms, but targeted, place-based action. Faster and clearer administration, smarter regulation, strong digital systems and competitive local finance markets reinforce each other. Together, they create regional business environments where firms can invest, innovate and grow, no matter where they are located.