Corruption, Business Environment, and Small Business Fixed Investment in India
This paper estimates a structural dynamic business investment equation and an error correction model of fixed assets growth on a sample of predominantly small and mid-size manufacturers in India. The results suggest that excessive labor regulation,...
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| Format: | Policy Research Working Paper |
| Language: | English |
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World Bank, Washington, DC
2012
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| Online Access: | http://documents.worldbank.org/curated/en/2007/09/8331007/corruption-business-environment-small-business-fixed-investment-india http://hdl.handle.net/10986/7347 |
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okr-10986-73472021-04-23T14:02:34Z Corruption, Business Environment, and Small Business Fixed Investment in India Honorati, Maddalena Mengistae, Taye ACCELERATOR ACCESS TO EXTERNAL FINANCE ACCESS TO FINANCE ACCESS TO SERVICES ADJUSTMENT COSTS BANK LENDING BANKRUPTCY BENCHMARKS BINDING CONSTRAINT BOND BORROWING BRIBES BUSINESS ENVIRONMENT BUSINESS FINANCE BUSINESS INVESTMENT BUSINESS PERFORMANCE CAPITAL STOCK CASH FLOW COLLATERAL COLLATERAL REQUIREMENTS COMPETITIVENESS CONTRACT ENFORCEMENT CORRUPTION COST OF CAPITAL CREDIT CONSTRAINT CREDIT RATIONING DEBT DEBT FINANCE DEVELOPING ECONOMIES DEVELOPMENT POLICY DISMISSAL ECONOMETRICS ECONOMIC DEVELOPMENT ECONOMIC GEOGRAPHY ECONOMIC GROWTH ECONOMIC OUTCOMES ELASTICITY OF SUBSTITUTION EMPLOYMENT ENDOGENOUS VARIABLES ENTREPRENEUR ENTRY BARRIERS EQUITY MARKETS EXCESSIVE REGULATION EXTERNAL FINANCE FINANCIAL CONSTRAINT FINANCIAL CONSTRAINTS FINANCIAL FACTORS FINANCIAL POLICY FINANCIAL SYSTEM FIRM LEVEL FIRM PERFORMANCE FISCAL DEFICITS FIXED ASSETS FIXED CAPITAL FIXED INVESTMENT GDP PER CAPITA GROWTH RATE GROWTH RATE OF SALES GROWTH RATES HOUSEHOLD CONSUMPTION HOUSEHOLDS INDEBTEDNESS INEQUALITY INSTITUTIONAL ENVIRONMENT INTEREST INCOME INTEREST RATE INTERNAL FINANCE INTERNATIONAL BANK INTERNATIONAL MARKETS INVESTMENT CLIMATE INVESTMENT DECISION INVESTMENT DECISIONS LABOR MARKET LABOR MARKET RIGIDITY LABOR MARKETS LABOR REGULATION LEGAL SYSTEM LENDERS LIQUIDITY LOAN LOAN PROCESSING LONG TERM LIABILITIES LOW INTEREST RATES This paper estimates a structural dynamic business investment equation and an error correction model of fixed assets growth on a sample of predominantly small and mid-size manufacturers in India. The results suggest that excessive labor regulation, power shortages, and problems of access to finance are all significant factors in industrial growth in the country. The estimated effects of labor regulation, power shortages and access to finance on the rate of business investment all vary by states' levels of industrial development and. Perhaps more importantly, they also depend on a fourth institutional factor, namely, corruption. The rate of fixed investment is significantly lower where power shortages are more severe and labor regulation is stronger over the full sample, but each of these impacts is also greater for businesses self-reportedly affected by corruption. Although access to finance does not seem to influence the rate of investment for most firms, there is evidence that investment decisions are constrained by cash flow in enterprises that are unaffected by corruption or power shortages. There are nuances to this story as we take into account regional specificity, but the key result always holds that labor regulation, power shortages and access to finance influence the rate of fixed investment in ways that depend on the incidence of corruption. In interpreting this finding, we would like to think of corruption as a proxy for the quality of property rights institutions in the sense of Acemoglu and Johnson (2005). On the other hand, we regard labor regulation and the financial environment of small businesses in India as instances of what Acemoglu and Johnson (2005) call 'contracting institutions'. The analysis finds that the interaction between corruption and other aspects of the institutional environment of fixed investment decisions could be seen consistent with the Acemoglu-Johnson view that the quality of property rights institutions exerts more abiding influence on economic outcomes than the quality of contracting institutions. 2012-06-06T21:16:14Z 2012-06-06T21:16:14Z 2007-09 http://documents.worldbank.org/curated/en/2007/09/8331007/corruption-business-environment-small-business-fixed-investment-india http://hdl.handle.net/10986/7347 English Policy Research Working Paper; No. 4356 CC BY 3.0 IGO http://creativecommons.org/licenses/by/3.0/igo/ World Bank World Bank, Washington, DC Publications & Research :: Policy Research Working Paper Publications & Research South Asia India |
| repository_type |
Digital Repository |
| institution_category |
Foreign Institution |
| institution |
Digital Repositories |
| building |
World Bank Open Knowledge Repository |
| collection |
World Bank |
| language |
English |
| topic |
ACCELERATOR ACCESS TO EXTERNAL FINANCE ACCESS TO FINANCE ACCESS TO SERVICES ADJUSTMENT COSTS BANK LENDING BANKRUPTCY BENCHMARKS BINDING CONSTRAINT BOND BORROWING BRIBES BUSINESS ENVIRONMENT BUSINESS FINANCE BUSINESS INVESTMENT BUSINESS PERFORMANCE CAPITAL STOCK CASH FLOW COLLATERAL COLLATERAL REQUIREMENTS COMPETITIVENESS CONTRACT ENFORCEMENT CORRUPTION COST OF CAPITAL CREDIT CONSTRAINT CREDIT RATIONING DEBT DEBT FINANCE DEVELOPING ECONOMIES DEVELOPMENT POLICY DISMISSAL ECONOMETRICS ECONOMIC DEVELOPMENT ECONOMIC GEOGRAPHY ECONOMIC GROWTH ECONOMIC OUTCOMES ELASTICITY OF SUBSTITUTION EMPLOYMENT ENDOGENOUS VARIABLES ENTREPRENEUR ENTRY BARRIERS EQUITY MARKETS EXCESSIVE REGULATION EXTERNAL FINANCE FINANCIAL CONSTRAINT FINANCIAL CONSTRAINTS FINANCIAL FACTORS FINANCIAL POLICY FINANCIAL SYSTEM FIRM LEVEL FIRM PERFORMANCE FISCAL DEFICITS FIXED ASSETS FIXED CAPITAL FIXED INVESTMENT GDP PER CAPITA GROWTH RATE GROWTH RATE OF SALES GROWTH RATES HOUSEHOLD CONSUMPTION HOUSEHOLDS INDEBTEDNESS INEQUALITY INSTITUTIONAL ENVIRONMENT INTEREST INCOME INTEREST RATE INTERNAL FINANCE INTERNATIONAL BANK INTERNATIONAL MARKETS INVESTMENT CLIMATE INVESTMENT DECISION INVESTMENT DECISIONS LABOR MARKET LABOR MARKET RIGIDITY LABOR MARKETS LABOR REGULATION LEGAL SYSTEM LENDERS LIQUIDITY LOAN LOAN PROCESSING LONG TERM LIABILITIES LOW INTEREST RATES |
| spellingShingle |
ACCELERATOR ACCESS TO EXTERNAL FINANCE ACCESS TO FINANCE ACCESS TO SERVICES ADJUSTMENT COSTS BANK LENDING BANKRUPTCY BENCHMARKS BINDING CONSTRAINT BOND BORROWING BRIBES BUSINESS ENVIRONMENT BUSINESS FINANCE BUSINESS INVESTMENT BUSINESS PERFORMANCE CAPITAL STOCK CASH FLOW COLLATERAL COLLATERAL REQUIREMENTS COMPETITIVENESS CONTRACT ENFORCEMENT CORRUPTION COST OF CAPITAL CREDIT CONSTRAINT CREDIT RATIONING DEBT DEBT FINANCE DEVELOPING ECONOMIES DEVELOPMENT POLICY DISMISSAL ECONOMETRICS ECONOMIC DEVELOPMENT ECONOMIC GEOGRAPHY ECONOMIC GROWTH ECONOMIC OUTCOMES ELASTICITY OF SUBSTITUTION EMPLOYMENT ENDOGENOUS VARIABLES ENTREPRENEUR ENTRY BARRIERS EQUITY MARKETS EXCESSIVE REGULATION EXTERNAL FINANCE FINANCIAL CONSTRAINT FINANCIAL CONSTRAINTS FINANCIAL FACTORS FINANCIAL POLICY FINANCIAL SYSTEM FIRM LEVEL FIRM PERFORMANCE FISCAL DEFICITS FIXED ASSETS FIXED CAPITAL FIXED INVESTMENT GDP PER CAPITA GROWTH RATE GROWTH RATE OF SALES GROWTH RATES HOUSEHOLD CONSUMPTION HOUSEHOLDS INDEBTEDNESS INEQUALITY INSTITUTIONAL ENVIRONMENT INTEREST INCOME INTEREST RATE INTERNAL FINANCE INTERNATIONAL BANK INTERNATIONAL MARKETS INVESTMENT CLIMATE INVESTMENT DECISION INVESTMENT DECISIONS LABOR MARKET LABOR MARKET RIGIDITY LABOR MARKETS LABOR REGULATION LEGAL SYSTEM LENDERS LIQUIDITY LOAN LOAN PROCESSING LONG TERM LIABILITIES LOW INTEREST RATES Honorati, Maddalena Mengistae, Taye Corruption, Business Environment, and Small Business Fixed Investment in India |
| geographic_facet |
South Asia India |
| relation |
Policy Research Working Paper; No. 4356 |
| description |
This paper estimates a structural
dynamic business investment equation and an error correction
model of fixed assets growth on a sample of predominantly
small and mid-size manufacturers in India. The results
suggest that excessive labor regulation, power shortages,
and problems of access to finance are all significant
factors in industrial growth in the country. The estimated
effects of labor regulation, power shortages and access to
finance on the rate of business investment all vary by
states' levels of industrial development and. Perhaps
more importantly, they also depend on a fourth institutional
factor, namely, corruption. The rate of fixed investment is
significantly lower where power shortages are more severe
and labor regulation is stronger over the full sample, but
each of these impacts is also greater for businesses
self-reportedly affected by corruption. Although access to
finance does not seem to influence the rate of investment
for most firms, there is evidence that investment decisions
are constrained by cash flow in enterprises that are
unaffected by corruption or power shortages. There are
nuances to this story as we take into account regional
specificity, but the key result always holds that labor
regulation, power shortages and access to finance influence
the rate of fixed investment in ways that depend on the
incidence of corruption. In interpreting this finding, we
would like to think of corruption as a proxy for the quality
of property rights institutions in the sense of Acemoglu and
Johnson (2005). On the other hand, we regard labor
regulation and the financial environment of small businesses
in India as instances of what Acemoglu and Johnson (2005)
call 'contracting institutions'. The analysis
finds that the interaction between corruption and other
aspects of the institutional environment of fixed investment
decisions could be seen consistent with the Acemoglu-Johnson
view that the quality of property rights institutions exerts
more abiding influence on economic outcomes than the quality
of contracting institutions. |
| format |
Publications & Research :: Policy Research Working Paper |
| author |
Honorati, Maddalena Mengistae, Taye |
| author_facet |
Honorati, Maddalena Mengistae, Taye |
| author_sort |
Honorati, Maddalena |
| title |
Corruption, Business Environment, and Small Business Fixed Investment in India |
| title_short |
Corruption, Business Environment, and Small Business Fixed Investment in India |
| title_full |
Corruption, Business Environment, and Small Business Fixed Investment in India |
| title_fullStr |
Corruption, Business Environment, and Small Business Fixed Investment in India |
| title_full_unstemmed |
Corruption, Business Environment, and Small Business Fixed Investment in India |
| title_sort |
corruption, business environment, and small business fixed investment in india |
| publisher |
World Bank, Washington, DC |
| publishDate |
2012 |
| url |
http://documents.worldbank.org/curated/en/2007/09/8331007/corruption-business-environment-small-business-fixed-investment-india http://hdl.handle.net/10986/7347 |
| _version_ |
1764402374746570752 |