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Investment Climate and Employment Growth: The Impact of Access to Finance, Corruption and Regulations across Firms

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  • Reyes Aterido
  • Mary Hallward-Driemeier
  • Carmen Pagés-Serra

Abstract

Using firm level data on 70,000 enterprises in 107 countries, this paper finds important effects of access to finance, business regulations, corruption, and to a lesser extent, infrastructure bottlenecks in explaining patterns of job creation at the firm level. The paper focuses on how the impact of the investment climate varies across sizes of firms. The results suggest strong composition effects: A weak business environment shifts downward the size distribution of firms. In the case of finance and business regulations this occurs by reducing the employment growth of all firms, particularly micro and small firms. On the other hand, corruption and poor access to infrastructure reduce employment growth by affecting the growth of medium size and large firms. With significant differences between firms with less than 10 employees and SMEs, these results indicate significant reforms are needed to spur micro firms to grow into the ranks of the SMEs.

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Bibliographic Info

Paper provided by Inter-American Development Bank in its series IDB Publications with number 43618.

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Date of creation: Oct 2007
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Handle: RePEc:idb:brikps:43618

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Keywords: Financial Services; Business Development; SME; investment climate; employment; corruption; regulations; job creation; corporation law;

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References

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  1. Hallward-Driemeier, Mary & Aterido, Reyes, 2009. "Comparing Apples with....Apples : how to make (more) sense of subjective rankings of constraints to business," Policy Research Working Paper Series 5054, The World Bank.
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  4. Timothy Besley & Robin Burgess, 2002. "Can Labour Regulation Hinder Economic Performance? Evidence from India," STICERD - Development Economics Papers - From 2008 this series has been superseded by Economic Organisation and Public Policy Discussion Papers 33, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE.
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  16. Klapper, Leora & Laeven, Luc & Rajan, Raghuram, 2004. "Business environment and firm entry : Evidence from international data," Policy Research Working Paper Series 3232, The World Bank.
  17. Amil Petrin & Jagadeesh Sivadasan, 2006. "Job Security Does Affect Economic Efficiency: Theory, A New Statistic, and Evidence from Chile," NBER Working Papers 12757, National Bureau of Economic Research, Inc.
  18. Fisman, Raymond & Svensson, Jakob, 2000. "Are corruption and taxation really harmful to growth? - firm-level evidence," Policy Research Working Paper Series 2485, The World Bank.
  19. James R. Tybout, 2000. "Manufacturing Firms in Developing Countries: How Well Do They Do, and Why?," Journal of Economic Literature, American Economic Association, vol. 38(1), pages 11-44, March.
  20. Almeida, Rita K. & Carneiro, Pedro, 2005. "Enforcement of Regulation, Informal Labor and Firm Performance," IZA Discussion Papers 1759, Institute for the Study of Labor (IZA).
  21. Thorsten Beck & Asli Demirguc-Kunt & Luc Laeven & Ross Levine, 2004. "Finance, Firm Size, and Growth," NBER Working Papers 10983, National Bureau of Economic Research, Inc.
  22. Ahsan, Ahmad & Pages, Carmen, 2007. "Are all labor regulations equal ? Assessing the effects of job security, labor dispute, and contract labor laws in India," Policy Research Working Paper Series 4259, The World Bank.
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Citations

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Cited by:
  1. Bartelsman, Eric & Haltiwanger, John C. & Scarpetta, Stefano, 2009. "Cross-Country Differences in Productivity: The Role of Allocation and Selection," IZA Discussion Papers 4578, Institute for the Study of Labor (IZA).
  2. Almeida, Rita K., 2010. "Openness and technological innovation in East Asia : have they increased the demand for skills ?," Policy Research Working Paper Series 5272, The World Bank.
  3. World Bank, 2011. "Challenges to Enterprise Performance in the Face of the Financial Crisis : Eastern Europe and Central Asia," World Bank Publications, The World Bank, number 2316.
  4. Dall'Olio, Andrea & Iootty, Mariana & Kanehira, Naoto & Saliola, Federica, 2013. "Productivity growth in Europe," Policy Research Working Paper Series 6425, The World Bank.
  5. Campos, Nauro F & Estrin, Saul & Proto, Eugenio, 2010. "Corruption as a Barrier to Entry: Theory and Evidence," CEPR Discussion Papers 8061, C.E.P.R. Discussion Papers.
  6. Villa, Stefania, 2010. "Exploring the linkages between investment and employment in Moldova : a time-series analysis," ILO Working Papers 455342, International Labour Organization.
  7. Kinda, Tidiane, 2010. "Investment Climate and FDI in Developing Countries: Firm-Level Evidence," World Development, Elsevier, vol. 38(4), pages 498-513, April.
  8. Almeida, Rita K. & Susanli, Z. Bilgen, 2011. "Firing Regulations and Firm Size in the Developing World: Evidence from Differential Enforcement," IZA Discussion Papers 6006, Institute for the Study of Labor (IZA).
  9. Marialuz Moreno Badia & Veerle Slootmaekers, 2009. "The Missing Link Between Financial Constraints and Productivity," IMF Working Papers 09/72, International Monetary Fund.
  10. Beck, T.H.L. & Munzele Maimbo, S. & Faye, I. & Triki, T., 2011. "Financing Africa: Through the crisis and beyond," Open Access publications from Tilburg University urn:nbn:nl:ui:12-4758568, Tilburg University.
  11. Bartelsman, Eric & Haltiwanger, John & Scarpetta, Stefano, 2010. "Cross-country and within-country differences in the business climate," International Journal of Industrial Organization, Elsevier, vol. 28(4), pages 368-371, July.
  12. T. Dinh, Hinh & Mavridis, Dimitris A. & Nguyen, Hoa B., 2010. "The binding constraint on firms'growth in developing countries," Policy Research Working Paper Series 5485, The World Bank.
  13. Rijkers, Bob & Soderbom, Mans & Loening, Josef, 2009. "Mind the gap ? a rural-urban comparison of manufacturing firms," Policy Research Working Paper Series 4946, The World Bank.
  14. Hinh T. Dinh & George R.G. Clarke, 2012. "Performance of Manufacturing Firms in Africa : An Empirical Analysis," World Bank Publications, The World Bank, number 11959.
  15. Diagne, Youssoupha S, 2013. "Impact of business environment on investment and output of manufacturing firms in Senegal," MPRA Paper 54227, University Library of Munich, Germany.
  16. Pasali, Selahattin Selsah, 2013. "Where is the cheese ? synthesizing a giant literature on causes and consequences of financial sector development," Policy Research Working Paper Series 6655, The World Bank.

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