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Regulatory Framework and Private Investment: Empirical Evidence for Developing Countries

Author

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  • Clarisse Nguedam Ntouko

    () (CERDI-CNRS / University of Auvergne, Clermont 1 (France))

Abstract

This paper analyzes the impact of business regulation on private investment in developing countries with a particular emphasis on sub-Saharan Africa. Using the principal component analysis methodology, we construct the following composite indexes of the regulatory framework: entry regulation, employment regulation, regulation of enforcing contracts, regulation of property registration and business closure regulation. This last indicator is also used as a proxy for investment irreversibility. The empirical analysis is performed with a panel data of 53 developing countries, including 18 sub-Saharan African countries over the period 2003-2007. The empirical results of the 3SLS estimations suggest that the complexity of the regulation of entry and employment has a negative and significant impact on private investment. However, the regulations of enforcing contracts and property registration are not statistically significant. The regulation of business closure measured by the recovery rate of bankrupt firms has a positive and significant effect. We also found that the private investment rate in sub-Saharan Africa would have been improved by about 4.57% over the period 2003-2007 if the average quality of the business regulation in the region had been equal to that of all other regions in our sample, all things being equal.

Suggested Citation

  • Clarisse Nguedam Ntouko, 2013. "Regulatory Framework and Private Investment: Empirical Evidence for Developing Countries," Economics Bulletin, AccessEcon, vol. 33(1), pages 494-510.
    • Handle: RePEc:ebl:ecbull:eb-12-00373
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    References listed on IDEAS

    as
    1. Evgeny Yakovlev & Ekaterina Zhuravskaya, 2007. "Deregulation of Business," Working Papers w0097, Center for Economic and Financial Research (CEFIR).
    2. Kaplan, David S. & Piedra, Eduardo & Seira, Enrique, 2011. "Entry regulation and business start-ups: Evidence from Mexico," Journal of Public Economics, Elsevier, vol. 95(11), pages 1501-1515.
    3. Levon Barseghyan, 2008. "Entry costs and cross-country differences in productivity and output," Journal of Economic Growth, Springer, vol. 13(2), pages 145-167, June.
    4. Helene Ehrhart, 2012. "Assessing the relationship between democracy and domestic taxes in developing countries," Economics Bulletin, AccessEcon, vol. 32(1), pages 551-566.
    5. David Kaplan & Eduardo Piedra & Enrique Seira, 2006. "Are Burdensome Registration Procedures an Important Barrier on Firm Creation? Evidence from Mexico," Discussion Papers 06-013, Stanford Institute for Economic Policy Research.
    6. Kolady, Deepthi & Spielman, David J. & Cavalieri, Anthony J., 2010. "Intellectual property rights, private investment in research, and productivity growth in Indian agriculture: A review of evidence and options," IFPRI discussion papers 1031, International Food Policy Research Institute (IFPRI).
    7. Besley, Timothy, 1995. "Property Rights and Investment Incentives: Theory and Evidence from Ghana," Journal of Political Economy, University of Chicago Press, vol. 103(5), pages 903-937, October.
    8. Easterly, William & Levine, Ross, 1998. "Troubles with the Neighbours: Africa's Problem, Africa's Opportunity," Journal of African Economies, Centre for the Study of African Economies (CSAE), vol. 7(1), pages 120-142, March.
    9. Maarten Bosker & Harry Garretsen, 2009. "Economic development and the geography of institutions," Journal of Economic Geography, Oxford University Press, vol. 9(3), pages 295-328, May.
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    More about this item

    Keywords

    Regulatory Framework; Business Regulation; Private Investment; Investment Climate; Institutions; Governance;

    JEL classification:

    • E2 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment
    • O1 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development

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