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

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

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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  • Aterido, Reyes & Hallward-Driemeier, Mary & Pagés, Carmen, 2011. "Investment Climate and Employment Growth: The Impact of Access to Finance, Corruption and Regulations across Firms," IDB Publications (Working Papers) 3301, Inter-American Development Bank.
    • Handle: RePEc:idb:brikps:3301
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    Cited by:

    1. 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.
    2. Rita K. Almeida, 2010. "Openness and Technological Innovation in East Asia: Have They Increased the Demand for Skills?," Asia-Pacific Development Journal, United Nations Economic and Social Commission for Asia and the Pacific (ESCAP), vol. 17(1), pages 63-95, June.
    3. repec:taf:macfem:v:11:y:2018:i:1:p:1-18 is not listed on IDEAS
    4. 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.
    5. Jean-Jacques Dethier & Maximilian Hirn & Stéphane Straub, 2011. "Explaining Enterprise Performance in Developing Countries with Business Climate Survey Data," World Bank Research Observer, World Bank Group, vol. 26(2), pages 258-309, August.
    6. 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.
    7. Thorsten Beck & Samuel Munzele Maimbo & Issa Faye & Thouraya Triki, 2011. "Financing Africa : Through the Crisis and Beyond," World Bank Publications, The World Bank, number 2355.
    8. Rita K. Almeida & Z. Bilgen Susanlı, 2012. "Firing Regulations and Firm Size in the Developing World: Evidence from Differential Enforcement," Review of Development Economics, Wiley Blackwell, vol. 16(4), pages 540-558, November.
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    10. Tidiane Kinda, 2018. "The quest for non-resource-based FDI: Do taxes matter?," Macroeconomics and Finance in Emerging Market Economies, Taylor & Francis Journals, vol. 11(1), pages 1-18, January.
    11. Nakhoda, Aadil, 2014. "The impact of electricity constraints on access to finance: A firm-level study," MPRA Paper 59507, University Library of Munich, Germany.
    12. Marialuz Moreno Badia & Veerle Slootmaekers, 2008. "The Missing Link Between Financial Constraints and Productivity," LICOS Discussion Papers 20808, LICOS - Centre for Institutions and Economic Performance, KU Leuven.
    13. 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, September.
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    16. 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, September.
    17. Floreani, Vincent Arthur, 2014. "Fixing Europe's youth unemployment and skills mismatch, can public financial support to SMEs be effective? The case of the European Commission and European Investment Bank joint initiatives," MPRA Paper 55849, University Library of Munich, Germany.
    18. Paunov, Caroline & Rollo, Valentina, 2016. "Has the Internet Fostered Inclusive Innovation in the Developing World?," World Development, Elsevier, vol. 78(C), pages 587-609.
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    24. repec:ilo:ilowps:455342 is not listed on IDEAS

    More about this item

    Keywords

    investment climate; employment; corruption; regulations; job creation; corporation law;

    JEL classification:

    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand

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