Institutional uncertainty and growth expectations of businesses: the case of Jordan

Abstract

AbstractUncertainty about the institutional environment plays a crucial role in business‐related decisions. Measuring institutional uncertainty, in light of its interplay with normative, regulatory, and cognitive aspects of institutions, is a complex issue. This study develops a multidimensional index to measure the perception of institutional uncertainty by private sector decision‐makers and to assess its effects on the perspectives of business growth. The index captures uncertainty related to government and policies, law and law enforcement, judiciary, security of persons and property rights, political instability, and state–private sector relations. The developed indicator is then measured based on a survey run over a representative sample of 319 business owners, entrepreneurs, and top managers in Jordan. The results of binary logit regressions support the view that if institutions are perceived to be uncertain, this negatively influences the growth expectations of businesses. More specifically, it emerges that the uncertainty related to the judiciary, to political instability, as well as to clientelism and corruption significantly contributes to discouraging job creation. The results further point to the importance of social capital and networking for doing business.