Corruption, Business Environment, and Small Business Fixed Investment in India

Honorati, Maddalena ; Mengistae, Taye

World Bank, Washington, DC

关键词: ACCELERATOR;    ACCESS TO EXTERNAL FINANCE;    ACCESS TO FINANCE;    ACCESS TO SERVICES;    ADJUSTMENT COSTS;   

DOI  :  10.1596/1813-9450-4356
RP-ID  :  WPS4356

学科分类：社会科学、人文和艺术（综合）

来源: World Bank Open Knowledge Repository

【 摘 要 】

This paper estimates a structuraldynamic business investment equation and an error correctionmodel of fixed assets growth on a sample of predominantlysmall and mid-size manufacturers in India. The resultssuggest that excessive labor regulation, power shortages,and problems of access to finance are all significantfactors in industrial growth in the country. The estimatedeffects of labor regulation, power shortages and access tofinance on the rate of business investment all vary bystates' levels of industrial development and. Perhapsmore importantly, they also depend on a fourth institutionalfactor, namely, corruption. The rate of fixed investment issignificantly lower where power shortages are more severeand labor regulation is stronger over the full sample, buteach of these impacts is also greater for businessesself-reportedly affected by corruption. Although access tofinance does not seem to influence the rate of investmentfor most firms, there is evidence that investment decisionsare constrained by cash flow in enterprises that areunaffected by corruption or power shortages. There arenuances to this story as we take into account regionalspecificity, but the key result always holds that laborregulation, power shortages and access to finance influencethe rate of fixed investment in ways that depend on theincidence of corruption. In interpreting this finding, wewould like to think of corruption as a proxy for the qualityof property rights institutions in the sense of Acemoglu andJohnson (2005). On the other hand, we regard laborregulation and the financial environment of small businessesin India as instances of what Acemoglu and Johnson (2005)call 'contracting institutions'. The analysisfinds that the interaction between corruption and otheraspects of the institutional environment of fixed investmentdecisions could be seen consistent with the Acemoglu-Johnsonview that the quality of property rights institutions exertsmore abiding influence on economic outcomes than the qualityof contracting institutions.