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Does the Business Environment Affect Corporate Investment in India?

  • Kiichi Tokuoka

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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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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  1. Kalpana Kochhar & Utsav Kumar & Raghuram Rajan & Arvind Subramanian, 2006. "India's Patterns of Development: What Happened, What Follows," NBER Working Papers 12023, National Bureau of Economic Research, Inc.
  2. Petia Topalova, 2004. "Trade Liberalization and Firm Productivity; The Case of India," IMF Working Papers 04/28, International Monetary Fund.
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