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Legal Restrictions and Investment Growth


  • Robert Lensink
  • Bert Scholtens


We analyze the impact of legal restrictions on investment growth at the firm level. With the help of a unique firm-level survey database, we analyze whether firm investments are related to the efficiency and quality of the judiciary. Furthermore, we analyze whether the investment behavior of large and small firms is influenced in the same manner and degree. Our results provide strong support for the hypothesis that investment growth may be hampered by laws that are experienced as negative by firms. We find that it especially is the smaller firms which are restricted by laws in their investment behavior. Larger (international) firms are better able to cope with the rules. These results are robust to different estimators. Copyright 2007 Blackwell Publishing Ltd..

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  • Robert Lensink & Bert Scholtens, 2007. "Legal Restrictions and Investment Growth," Kyklos, Wiley Blackwell, vol. 60(4), pages 575-600, November.
  • Handle: RePEc:bla:kyklos:v:60:y:2007:i:4:p:575-600

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    References listed on IDEAS

    1. Randall Morck & David Stangeland & Bernard Yeung, 2000. "Inherited Wealth, Corporate Control, and Economic Growth The Canadian Disease?," NBER Chapters,in: Concentrated Corporate Ownership, pages 319-372 National Bureau of Economic Research, Inc.
    2. Daron Acemoglu & Simon Johnson & James Robinson, 2004. "Institutions as the Fundamental Cause of Long-Run Growth," NBER Working Papers 10481, National Bureau of Economic Research, Inc.
    3. Beck, Thorsten & Demirguc-Kunt, Asli & Levine, Ross, 2006. "Bank supervision and corruption in lending," Journal of Monetary Economics, Elsevier, vol. 53(8), pages 2131-2163, November.
    4. Huang, Yasheng, 2005. "Are Foreign Firms Privileged By Their Host Governments? Evidence From The 2000 World Business Environment Survey," Working papers 4538-04, Massachusetts Institute of Technology (MIT), Sloan School of Management.
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    Cited by:

    1. Walter Buhr, 2009. "Infrastructure of the Market Economy," Volkswirtschaftliche Diskussionsbeiträge 132-09, Universität Siegen, Fakultät Wirtschaftswissenschaften, Wirtschaftsinformatik und Wirtschaftsrecht.
    2. Gustav Hansson, 2009. "What Determines Rule of Law? An Empirical Investigation of Rival Models," Kyklos, Wiley Blackwell, vol. 62(3), pages 371-393, August.

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