Does a better business environment stimulate corporate investment in India?

Abstract

Purpose– The paper aims to examine empirically whether the business environment, especially costs of doing business, affects corporate investment in India.Design/methodology/approach– The paper uses a firm-level panel data set (Prowess provided by the Centre for Monitoring Indian Economy) and estimates the impact of costs of doing business on corporate investment with panel regressions.Findings– The analysis of micro panel data suggests that improving the business environment by reducing costs of doing business, improving financial access, and developing infrastructure could stimulate corporate investment. More specifically, the estimates suggest that reducing the average of each cost of doing business to the lowest among Indian cities could boost aggregate corporate investment by as much as 10 percent.Practical implications– The government could play a role in reviving corporate investment in India, by improving the business environment.Originality/value– To the best of the author ' s knowledge, this paper is the first to examine the impact of costs of doing business (reported by the World Bank) on corporate investment, using firm-level micro data.