The Nexus Between Business-Investment Climate and Firm Performance in The Middle East and North Africa (MENA) Region

The Economic Research Forum (ERF) Working Paper No. 1277, 2018

37 Pages Posted: 3 Jul 2019

See all articles by Eleftherios Giovanis

Eleftherios Giovanis

Manchester Metropolitan University-Business School, Department of Economics, Policy and International Business; Aydin Adnan Menderes University, Nazilli Faculty of Economics and Administrative Sciences

Oznur Ozdamar

Aydın Adnan Menderes University

Date Written: December 1, 2018

Abstract

Business and investment climate indicators are relations between the public and private sectors. They may take the form of formal, regular, and informal interactions and their scope can include the economy as a whole or they may target specific types of firms in specific sectors or certain policy processes. Effective business and investment climate is important, because it can lead to a higher rate of investment, profits, and improved productivity, through the creation of an institutional environment, where the state provides high quality public goods, including infrastructure, political stability, and strategies for reducing consumption, fair and effective public administration. This study aims to explore the impact of business investment climate on firm’s value added, labour and total factor productivity (TFP) in a sample of six countries in the Middle East and North Africa (MENA) region and Turkey. The analysis relies on micro-level data derived from the World Bank Enterprise Surveys over the period 2006-2016. To reduce endogeneity coming from possible reverse causality and the perceptions about business climate we follow an instrumental variables (IV) approach applying the two-stage least squares (2SLS) method. Based on our favoured 2SLS estimates the obstacles in business climate may reduce the firm performance measures by 15-40 per cent. These findings indicate the importance of the quality in business climate and how the improvement in its effectiveness can have a very considerable positive impact on firms’ performance and thus in the overall economic growth of a country.

Keywords: Business and Investment Climate, Economic Growth, Firm Performance, Governance, Institutions, MENA Region, Productivity

JEL Classification: D73, K15, L5, O1, O57, O43, O49

Suggested Citation

Giovanis, Eleftherios and Ozdamar, Oznur, The Nexus Between Business-Investment Climate and Firm Performance in The Middle East and North Africa (MENA) Region (December 1, 2018). The Economic Research Forum (ERF) Working Paper No. 1277, 2018. Available at SSRN: https://ssrn.com/abstract=3411497 or http://dx.doi.org/10.2139/ssrn.3411497

Eleftherios Giovanis (Contact Author)

Manchester Metropolitan University-Business School, Department of Economics, Policy and International Business ( email )

Business School
All Saints Campus
Manchester, M15 6BH
United Kingdom

Aydin Adnan Menderes University, Nazilli Faculty of Economics and Administrative Sciences ( email )

Nazilli IIBF
Sumer Kampusu
Aydin, Nazilli 09800
Turkey

Oznur Ozdamar

Aydın Adnan Menderes University ( email )

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