  Regulation is commonly viewed as a hindrance to entrepreneurship, but
heterogeneity in the effects of regulation is rarely explored. We focus on
regional variation in the effects of national-level regulations by developing a
theory of hierarchical institutional interdependence. Using the political
science theory of market-preserving federalism, we argue that regional economic
freedom attenuates the negative influence of national regulation on net job
creation. Using U.S. data, we find that regulation destroys jobs on net, but
regional economic freedom moderates this effect. In regions with average
economic freedom, a one percent increase in regulation results in 14 fewer jobs
created on net. However, a standard deviation increase in economic freedom
attenuates this relationship by four fewer jobs. Interestingly, this moderation
accrues strictly to older firms; regulation usually harms young firm job
creation, and economic freedom does not attenuate this relationship.
