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Creating businesses in the Least Developed Countries: does the Regulatory Environment Matter?

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  • António Afonso
  • M. Carmen Blanco-Arana

Abstract

This paper assesses the impact of the regulatory environment on the new business creation in 45 Least Developed Countries (LDC) using a panel data from 2000 to 2021. Empirical evidence, derived from a fixed effects (FE) model, indicates a strong relationship between business regulation and new business creation in LDC. This suggests that the regulatory framework of a country is a crucial factor that influences entrepreneurial decisions and can significantly contribute to economic growth. The overall economic situation of a country also has a positive and significant impact. Additionally, factors such as accessibility to financial services, political stability, control of corruption, and economic freedom clearly affect the establishment of new businesses in these countries. Similar results are obtained using the Generalised Method of Moments (GMM) estimator, through the use of a dynamic panel data approach. Finally, business regulation is also strongly associated with new business creation in OECD countries.

Suggested Citation

  • António Afonso & M. Carmen Blanco-Arana, 2025. "Creating businesses in the Least Developed Countries: does the Regulatory Environment Matter?," Working Papers REM 2025/0377, ISEG - Lisbon School of Economics and Management, REM, Universidade de Lisboa.
    • Handle: RePEc:ise:remwps:wp03772025
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    More about this item

    Keywords

    New business; regulatory environment; FE; GMM; panel data; LDC.;
    All these keywords.

    JEL classification:

    • M20 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Economics - - - General
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models

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