Do Business Regulations Promote Growth in Low-income Countries?

Abstract

The present article addresses the complex web of interactions between the architecture and quality of the business regulatory setting and economic growth. Thus, we aim to advance a two-fold contribution to the literature: we methodologically account for the uncertainty related to possible alternative explanations for growth processes, by means of ‘Bayesian Model Averaging’; and we assess the impact of business environment on growth, involving the descriptors reflected by Country Policy and Institutional Assessment. These indicators benefit from a pronounced ‘in-field’ nature and reflect a large variety of possible public policies. The results suggest a statistically significant positive relationship between the overall quality of business regulatory environment and growth. This outcome is found to be robust to various choices of priors’ structures. Moreover, the outcome’s estimated amplitude largely declines once the endogeneity is considered.