Li, WeiMengistae, TayeXu, Lixin Colin2012-03-192012-03-192011-04-01https://hdl.handle.net/10986/3405Although it had a a lower income level than India in 1980, China's 2006 per capita gross domestic product stands more than twice that of India's. This paper investigates the role of the business environment in explaining China's productivity advantage using recent firm-level survey data. The analysis finds that China has better infrastructure, more skilled workers, and more labor-hiring flexibility than India, but a worse access to finance and higher regulatory burden. Infrastructure appears to be a key constraint for India: it lags significantly behind China, yet it has important indirect effects for the effectiveness of labor flexibility. Labor flexibility is also likely a major constraint for India, as evident in the predominance of small firms, the importance of firm size in accounting for India's disadvantage in productivity, and the complementarity of proxies of labor flexibility with infrastructure and access to finance. Interestingly, regulatory uncertainty has adverse effects in India but not in China. The empirical analysis suggests that it is important to consider country-specific growth bottlenecks and the indirect effects of policy reforms.CC BY 3.0 IGOACCOUNTINGADOPTION OF INFORMATIONADVERSE EFFECTSAVERAGE PRODUCTIVITYBACKUPBACKUP POWERBANKING SYSTEMBANKSBOOK VALUEBUSINESS CLIMATEBUSINESS ENVIRONMENTBUSINESS ENVIRONMENTSBUSINESS OPPORTUNITIESBUSINESSESCAPABILITYCAPITAL EXPENDITURECOBB-DOUGLAS PRODUCTION FUNCTIONCOLLECTIVE AGREEMENTCOMPARATIVE ANALYSISCOMPETITIVE MARKETCOMPETITIVENESSCOMPUTER TECHNOLOGYCOMPUTERSCONTRACT LABORCONTROL SYSTEMCORRELATION MATRIXCOUNTRY-SPECIFIC FACTORSCREATING JOBSCROSS-SECTIONAL DATADEBTDEMOCRACYDEREGULATIONDEVELOPMENT ECONOMICSECONOMIC ANALYSISECONOMIC CONDITIONSECONOMIC DEVELOPMENTECONOMIC EFFICIENCYECONOMIC GROWTHECONOMIC REFORMECONOMICSECONOMIES OF SCALEELECTRICITYEMPIRICAL ANALYSISEMPLOYEEEMPLOYMENTEMPLOYMENT SIZEENTERPRISE SECTORENTERPRISE SURVEYSENTREPRENEURSHIPENVIRONMENTALENVIRONMENTSEQUILIBRIUMEQUIPMENTEXPENDITURESFINANCIAL REFORMFINANCIAL SYSTEMFIRM ENTRYFIRM LEVELFIRM PERFORMANCEFIRM PRODUCTIVITYFIRM SIZEFIRM-LEVEL PRODUCTIVITYFOREIGN INVESTMENTGEOGRAPHIC REGIONSGLOBALIZATIONGOVERNMENT INTERVENTIONGROWTH STRATEGIESHUMAN CAPITALIMPLEMENTATIONSINCOMEINDUSTRIAL EMPLOYMENTINFORMATION TECHNOLOGYINNOVATIONINNOVATIONSINSTALLATIONINTERMEDIATE INPUTSJOB CREATIONJOB SECURITYJOBSLABOR DEMANDLABOR DISPUTESLABOR FORCELABOR FORCE SKILLSLABOR LAWSLABOR MARKETLABOR MARKET FLEXIBILITYLABOR MARKET REFORMSLABOR MARKETSLABOR PRODUCTIVITYLABOR REGULATIONLABOR REGULATIONSLARGE CITIESLICENSELITERACY RATELOCAL FIRMSLOCAL INFRASTRUCTURELOCAL LABOR MARKETMANUFACTURINGMANUFACTURING INDUSTRIESMARKET MECHANISMMATERIALMEDIUM ENTERPRISENETWORKSOPEN ACCESSOPERATING COSTSOUTPUTSPERMANENT WORKERSPHYSICAL INFRASTRUCTUREPOLICY ENVIRONMENTPOLICY FORMULATIONPOLITICAL ECONOMYPRIVATE FIRMSPRIVATE SECTORPRIVATE SECTOR DEVELOPMENTPRODUCERSPRODUCT MARKETPRODUCTION COSTSPRODUCTION FUNCTIONSPRODUCTION PROCESSPRODUCTION PROCESSESPRODUCTIVE FIRMPRODUCTIVE FIRMSPRODUCTIVE SECTORPRODUCTIVITY DIFFERENTIALPRODUCTIVITY EFFECTSPRODUCTIVITY GAPPRODUCTIVITY GROWTHPROFITABILITYPUBLIC POLICYRELIABILITYRESOURCE ALLOCATIONRESULTRESULTSRETAIL STORESSAVINGSSERVICE INDUSTRIESSKILLED LABORSKILLED WORKERSSOCIAL DEVELOPMENTSTATE BANKSSTATE-OWNED ENTERPRISESTECHNOLOGICAL DEVELOPMENTSTELECOMMUNICATIONSTEMPORARY WORKERSTOTAL EMPLOYMENTTOTAL FACTOR PRODUCTIVITYTRADE UNIONSTRAGEDY OF THE COMMONSTRANSACTIONTRANSACTION COSTSTRANSITION ECONOMIESTRANSMISSIONTRANSPORTUSE VALUEUSESWEBWELFARE EFFECTSWORKERWORKING CAPITALWorld Bank10.1596/1813-9450-5641