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Does the Business Environment Affect Corporate Investment in India?

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  • Kiichi Tokuoka

Abstract

Since the global financial crisis, corporate investment has been weak in India. Sluggish corporate investment would not only moderate growth from the demand side but also constrain growth from the supply side over time. Against this background, this paper analyzes the reasons for the slowdown and discusses how India can boost corporate investment, using both macro and firm-level micro data. Analysis of macro data indicates that macroeconomic factors can largely explain corporate investment but that they do not appear to account fully for recent weak performance, suggesting a key role of the business environment in reviving corporate investment. Analysis of micro panel data suggests that improving the business environment by reducing costs of doing business, improving financial access, and developing infrastructure, could stimulate corporate investment.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 12/70.

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Length: 22
Date of creation: 01 Mar 2012
Date of revision:
Handle: RePEc:imf:imfwpa:12/70

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Related research

Keywords: Infrastructure; Corporate sector; Manufacturing sector; Private investment; inflation; gdp growth; inflation rate; real gdp; real interest rate; capital formation; gross fixed capital formation; fixed capital formation; inflation rates; aggregate demand; economic growth; growth rate; high inflation; real interest rates; monetary economics;

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  1. Petia Topalova & Amit Khandelwal, 2011. "Trade Liberalization and Firm Productivity: The Case of India," The Review of Economics and Statistics, MIT Press, vol. 93(3), pages 995-1009, August.
  2. Arvind Subramanian & Raghuram Rajan & Ioannis Tokatlidis & Kalpana Kochhar & Utsav Kumar, 2006. "India's Pattern of Development," IMF Working Papers 06/22, International Monetary Fund.
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