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What influences firms' perceptions?

  • Kaplan, David S.
  • Pathania, Vikram

Perceptions-based indicators are sometimes used to measure the quality of the business environment. For instance, firms are asked about the major constraints on business operations and expansion. Little is known, however, about what shapes their responses. In this paper, using perceptions-based indicators from 38 countries (84 country-year pairs) from the World Bank Enterprise Surveys, we argue that firm responses are critically influenced by macroeconomic conditions. Paradoxically, we find that perceptions worsen during periods of high GDP growth. We also examine other indicators from the Enterprise Surveys that are objective measures of constraints, and find mixed evidence on how business constraints vary with the business cycle. Finally, we find that firms that introduce new product lines, which are likely those with the most interactions with regulatory agencies, have particularly bad perceptions of the business environment. We conclude that changes in firms' perceptions over time may not reflect changes in the business environment.

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Article provided by Elsevier in its journal Journal of Comparative Economics.

Volume (Year): 38 (2010)
Issue (Month): 4 (December)
Pages: 419-431

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Handle: RePEc:eee:jcecon:v:38:y:2010:i:4:p:419-431
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/622864

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  1. Daron Acemoglu & Simon Johnson, 2003. "Unbundling Institutions," NBER Working Papers 9934, National Bureau of Economic Research, Inc.
  2. Thorsten Beck & Asli Demirgüç-Kunt & Vojislav Maksimovic, 2005. "Financial and Legal Constraints to Growth: Does Firm Size Matter?," Journal of Finance, American Finance Association, vol. 60(1), pages 137-177, 02.
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  6. William D. Nordhaus, 1998. "Quality Change in Price Indexes," Journal of Economic Perspectives, American Economic Association, vol. 12(1), pages 59-68, Winter.
  7. Benjamin A. Olken, 2005. "Monitoring Corruption: Evidence from a Field Experiment in Indonesia," NBER Working Papers 11753, National Bureau of Economic Research, Inc.
  8. Dabla-Norris, Era & Gradstein, Mark & Inchauste, Gabriela, 2008. "What causes firms to hide output? The determinants of informality," Journal of Development Economics, Elsevier, vol. 85(1-2), pages 1-27, February.
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  10. 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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