Corruption, the Rusiness Environment, and Small Business Growth in India
This paper estimates a dynamic business growth equation on a sample of small-scale manufacturers. The results suggest that excessive labor regulation, power shortages, and problems of access to finance are significant influences on industrial growt...
| Main Authors: | , |
|---|---|
| Language: | English |
| Published: |
World Bank, Washington, DC
2012
|
| Subjects: | |
| Online Access: | http://documents.worldbank.org/curated/en/2007/08/8196063/corruption-business-environment-small-business-growth-india http://hdl.handle.net/10986/7288 |
| Summary: | This paper estimates a dynamic business
growth equation on a sample of small-scale manufacturers.
The results suggest that excessive labor regulation, power
shortages, and problems of access to finance are significant
influences on industrial growth in India. The expected
annual sales growth rate of an enterprise is lower where
labor regulation is greater, power shortages are more
severe, and cash flow constraints are stronger. The effects
of each of the three factors on business growth seem also to
depend on a fourth element, namely, corruption.
Specifically, labor regulation affects the growth only of
enterprises for which corruption is not a factor in business
decisions. By contrast, power shortages seem to be a drag on
the growth only of enterprises self-reportedly held back by
corruption. Lastly, sales growth is constrained by cash flow
only in businesses that are not affected by labor
regulation, power shortages, or corruption. The analysis
uses corruption as a proxy for the quality of "property
rights institutions" and considers labor regulation and
small business financing as instances of "contracting
institutions." The findings on the interaction between
corruption and other aspects of business environment then
seems to indicate that the quality of property rights
institutions exerts more abiding influence on economic
outcomes than the quality of contracting institutions.
Moreover, there might also be a hierarchy among contracting
institutions in their effect on manufacturing growth. |
|---|