Business Environment and Economic Growth: Further Empirical Results

Journal Title: Journal of Economics, Finance and Management Studies - Year 2018, Vol 1, Issue 01

Abstract

This paper examines the impact of the business environment on economic growth using several samples of both developed and developing countries. Based on data from the World Bank for the 2000- 2015 period for a sample of 114 developed and developing economies, when using the Bank’s Doing Business Indicators as proxies for business-friendly economic policies (also referred to as objective measures of business regulations, we find that the growth rate of GDP is dependent on a country’s growth rate of arable land per capita, its share of gross capital formation in the GDP, its labor force growth rate, the growth rate of general government consumption, the growth rate of net exports, the number of procedures to build a warehouse, the time required to start a business, the time required to enforce contracts, the time required to resolve insolvency, and the cost of starting a business as a percent of per capita income. We observe that the coefficient estimates of three explanatory variables, namely, the time required to start a business, that required to resolve insolvency, and the number of procedures to build a warehouse, do not have their expected sign, possibly to the collinearity between these variables and the other two indicators, namely, the cost of starting a business as a percent of per capita income, and the time required to enforce contracts. On the other hand, when we use the World Bank’s enterprise surveys as measures of the business environment from a sample of 91 developed and developing countries, we find that the growth rate of GDP is dependent on a country’s labor force growth rate, its share of gross capital formation in the GDP, the growth rate of general government consumption, the growth rate of net exports, the percentage of senior management time spent dealing with the requirements of government regulations, the time required to obtain an operating license, the percentage of firms having a bribery incidence, losses due to theft, robbery, vandalism, and arson as a percent of sales, the percentage of firms competing against unregistered firms, the percentage of firms that have internationally recognized quality certification, and the percentage of firms that offer formal training. We observe that the coefficient estimates of three explanatory variables, namely, the time required to obtain an operating license, the percentage of firms having a bribery incidence, and the percentage of firms that have internationally recognized quality certification, do not have their expected sign. We suspect that this is also due to the collinearity between this variable and the other statistically significant enterprise survey indicators. Empirical results also show that the impact of the business environment also varies according to a country’s level of economic development. Statistical results of such empirical examination will assist governments in both developed and developing countries focus on appropriate policies that recognize the importance of a good business environment in order to foster economic growth.

Authors and Affiliations

Minh Quang Dao

Keywords

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