Abstract
This paper provides evidence on the impact of the business environment on the growth of firms in less-developed countries, with evidence from Kosovo firms. The theoretical perspective used is growth diagnostics. The data used to test the hypotheses were obtained from two different sources: international surveys and a manager survey dataset. The findings show that the business environment in Kosovo provides little incentive for firm growth. Further, empirical evidence shows that the business environment in Kosovo is characterised by low appropriability, with a high cost of capital, and in which complementary factors in the form of human capital are scarce.
Highlights
Intending to create economic value, firms react to their business environment in different ways
Methodology and data The methodology used in this paper builds on the growth diagnostics framework developed by Hausmann et al (2008), which argues that there might be many reasons why firms do not grow, but each reason generates a specific set of symptoms
The process of investigation was conducted by applying the growth diagnostics approach and methodology
Summary
Intending to create economic value, firms react to their business environment in different ways. In most cases this reaction is affected by factors outside the firm’s control. Findings indicate that the most binding constraint is related to appropriability factors. Several symptoms point out that government in the country fails to provide necessary public goods. This is indicated by micro-risk factors such as unfair competitive practices, rule of law, and high levels of corruption. Appropriation factors are followed by access to finance and complementary factors in the form of human capital as constraints that matter the most for growth
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