Ayyagari, MeghanaDemirgüç-Kunt, AsliMaksimovic, Vojislav2012-06-262012-06-262006-01https://hdl.handle.net/10986/8998What role does the business environment play in promoting and restraining firm growth? Recent literature points to a number of factors as obstacles to growth. Inefficient functioning of financial markets, inadequate security and enforcement of property rights, poor provision of infrastructure, inefficient regulation and taxation, and broader governance features such as corruption and macroeconomic stability are all discussed without any comparative evidence on their ordering. In this paper, we use firm level survey data to present evidence on the relative importance of different features of the business environment. We find that although firms report many obstacles to growth, not all the obstacles are equally constraining. Some affect firm growth only indirectly through their influence on other obstacles, or not at all. Using Directed Acyclic Graph (DAG) methodology as well as regressions, we find that only obstacles related to Finance, Crime and Policy Instability directly affect the growth rate of firms. Robustness tests further show that the Finance result is the most robust of the three. These results have important policy implications for the priority of reform efforts. Our results show that maintaining policy stability, keeping crime under control, and undertaking financial sector reforms to relax financing constraints are likely to be the most effective routes to promote firm growth.en-USCC BY 3.0 IGOABSOLUTE VALUEACCESS TO CREDITACCESS TO EXTERNAL FINANCEACCESS TO FINANCINGACCOUNTINGBANK EQUITYBANK PAPERWORKBANK POLICYBIASESBINDING CONSTRAINTBINDING CONSTRAINTSBORROWINGBUSINESS ENVIRONMENTBUSINESS ENVIRONMENTSCHECKSCOLLATERALCOLLATERAL REQUIREMENTSCOMMON LAWCOMPETITORSCORRUPTIONCOUNTRY DUMMIESCOUNTRY FIXED EFFECTCOUNTRY FIXED EFFECTSCOUNTRY LEVELCOUNTRY REGRESSIONSCOUNTRY-LEVEL INDICATORSDEMAND FOR CAPITALDEPENDENT VARIABLEDEVELOPING COUNTRIESDEVELOPMENT ECONOMICSDUMMY VARIABLEDUMMY VARIABLESECONOMIC DEVELOPMENTECONOMIC GROWTHECONOMIC IMPACTEMPLOYMENTENTREPRENEURSEQUIPMENTERROR TERMESTIMATED COEFFICIENTSEXCHANGE RATEEXCHANGE RATESEXCLUSIONEXPANSIONEXPLANATORY VARIABLESEXPORTEREXTERNAL FINANCEEXTERNAL FINANCINGFARMERSFINANCE ACCESSFINANCIAL DEVELOPMENTFINANCIAL INFORMATIONFINANCIAL INSTITUTIONSFINANCIAL INTERMEDIATIONFINANCIAL MARKETSFINANCIAL OBSTACLEFINANCIAL OBSTACLESFINANCIAL POLICIESFINANCIAL SECTORFINANCIAL SECTOR REFORMFINANCIAL SECTOR REFORMSFINANCIAL STUDIESFINANCIAL SYSTEMFINANCIAL SYSTEMSFINANCING OBSTACLEFINANCING OBSTACLESFIRM GROWTHFIRM PERFORMANCEFIRM SIZEFIRM SIZESFOREIGN BANKSFOREIGN EXCHANGEFOREIGN FIRMSFOREIGN OWNERSHIPGOVERNMENT OWNERSHIPGOVERNMENT POLICIESGROWTH LITERATUREGROWTH OPPORTUNITIESGROWTH RATEGROWTH RATESGROWTH REGRESSIONGROWTH REGRESSIONSHIGH GROWTHHIGH GROWTH RATEHIGH INCOME COUNTRIESHIGH INFLATIONHIGH INTEREST RATEHIGH INTEREST RATESINCOMEINCOME GROUPINCOME GROUPSINCOME LEVELINCOME LEVELSINDEPENDENT VARIABLESINDIVIDUAL COUNTRIESINDIVIDUAL FIRMINDIVIDUAL FIRMSINFLATIONINFLATION RATESINFLATION TAXINSTITUTIONAL DEVELOPMENTINSTRUMENTINTEREST RATEINTEREST RATESINTERNATIONAL ACCOUNTING STANDARDSINVESTMENT CLIMATEJUDICIAL EFFICIENCYLACK OF ACCESSLATIN AMERICANLEASINGLEGAL CONSTRAINTSLEGAL ENFORCEMENTLEGAL SYSTEMSLICENSINGLIMITED ACCESSLOANLONG-TERM CAPITALLONG-TERM LOANSMACROECONOMIC INSTABILITYMACROECONOMIC POLICIESMACROECONOMIC STABILITYMEAN VALUEMONETARY ECONOMICSNEGATIVE EFFECTNEGATIVE IMPACTNONPAYMENT0 HYPOTHESISOBSTACLES TO GROWTHOUTPUTPERFORMANCE MEASURESPOLICY IMPLICATIONSPOLICY RESEARCHPRIVATE SECTOR DEVELOPMENTPROPERTY RIGHTSPROPERTY RIGHTS PROTECTIONREFORM EFFORTSRELATIVE IMPORTANCESALES GROWTHSIGNIFICANT IMPACTSMALL FIRMSSTANDARD DEVIATIONSUB-SAHARAN AFRICATAXTAXATIONTRANSACTIONTRANSITION COUNTRIESTRANSITION ECONOMIESTRINIDAD AND TOBAGOWorld Bank10.1596/1813-9450-3820