Does a better business environment stimulate corporate investment in India?
Abstract
Purpose
The paper aims to examine empirically whether the business environment, especially costs of doing business, affects corporate investment in India.
Design/methodology/approach
The paper uses a firm-level panel data set (Prowess provided by the Centre for Monitoring Indian Economy) and estimates the impact of costs of doing business on corporate investment with panel regressions.
Findings
The 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. More specifically, the estimates suggest that reducing the average of each cost of doing business to the lowest among Indian cities could boost aggregate corporate investment by as much as 10 percent.
Practical implications
The government could play a role in reviving corporate investment in India, by improving the business environment.
Originality/value
To the best of the author ' s knowledge, this paper is the first to examine the impact of costs of doing business (reported by the World Bank) on corporate investment, using firm-level micro data.
Keywords
Acknowledgements
JEL classification – D22, D24, E22. This paper is based on the research the author made while working at the International Monetary Fund. The author is grateful to Laura Papi, Masahiko Takeda, the co-editor and two anonymous referees for their helpful comments. The views expressed in this paper are the author ' s own and do not represent those of the Ministry of Finance or the International Monetary Fund.
Citation
Tokuoka, K. (2013), "Does a better business environment stimulate corporate investment in India?", Indian Growth and Development Review, Vol. 6 No. 2, pp. 289-305. https://doi.org/10.1108/IGDR-05-2012-0023
Publisher
:Emerald Group Publishing Limited
Copyright © 2013, Emerald Group Publishing Limited