**Table 9.-Dynamic firm growth equations: GMM-sys estimates, all states and by assessment of corruption, labor regulation and power shortages as a constraint to growth** Dependent variable= Δ _<u>y it</u>_

||<br>|Labor regulation<br>|||<br>|Power shortages<br>|||
|---|---|---|---|---|---|---|---|---|
||Constraine|d by corruption|Unconstrain|ed by corruption|Constrained by|corruption|Unconstraine|d by corruption|
||Constrained|Unconstrained|Constrained|Unconstrained|Constrained|Unconstrained|Constrained|Unconstraine|
||by labor<br>regulation<br>(1)|by labor<br>regulation<br>(2)|by labor<br>regulation<br>(3)|by labor<br>regulation<br>(4)|by power<br>shortages<br>(5)|by power<br>shortages<br>(6)|by power<br>shortages<br>(7)|by power<br>shortages<br>(8)|
|_y_|-0.022|-0.008|-0.045|0.058|0.014|-0.041|0.039|-0.001|
|1<br>−<br>_it_<br>|(1.07)|(0.36)|(1.52)|(2.39)*|(0.82)|(2.29)*|(2.23)*|(0.04)|
|1<br>−<br>Δ<br>_it_<br>_y_|0.000|0.006|-0.082|-0.069|-0.029|0.034|-0.044|-0.017|
||(0.00)|(0.55)|(7.55)**|(4.41)**|(1.56)|(2.68)**|(4.55)**|(0.87)|
|(<br>)<br>1<br>/<br>−<br>Π<br>_it_<br>_K_|-0.311|-0.051|-0.380|0.254|-0.162|-0.280|-0.110|0.151|
||(4.16)**|(1.07)|(9.73)**|(2.93)**|(2.84)**|(3.98)**|(1.75)|(2.66)**|
|(<br>)<br>1<br>/<br>−<br>_it_<br>_K_<br>_D_|0.086|-0.048|-0.017|-0.065|-0.014|0.049|-0.062|-0.107|
||(2.34)*|(1.41)|(0.90)|(3.20)**|(0.49)|(1.03)|(3.30)**|(2.98)**|
|Outage loss|0.004|-0.003|-0.033|-0.015|||||
||(0.75)|(1.01)|(3.12)**|(2.04)*|||||
|Constrained by labor regulation|||||-0.062|0.025|-0.199|-0.273|
||||||(0.53)|(0.35)|(3.74)**|(3.21)**|
|Constant|0.304|0.294|0.268|0.253|0.319|0.521|-0.408|0.639|
||(1.23)|(1.19)|(0.44)|(0.71)|(1.46)|(2.12)*|(1.80)|(2.28)*|
|Observations|934|472|268|413|1070|336|416|265|
|Numberofbusinesses|660|335|197|319|724|259|313|200|
|Overidentification test:|||||||||
|Chi-square|62.7|43.9|45.6|53.0|70.6|51.2|50.5|58.8|
|P-value|0.45|0.91|0.81|0.73|0.24|0.50|0.68|0.34|
|AR in first dif. error (z-stat):|||||||||
|m1|-2.99|-4.25|-2.70|-2.76|-3.97|-2.12|-3.05|-2.03|
|m2|-1.41|1.56|1.04|-0.23|-2.10|1.42|1.45|-0.33|

Absolute value of z-statistics in parentheses. All columns include industry, state and year dummies. * significant at 5% level; ** significant at 1% level Instruments: lags of growth, sales, profitabilability and indebtedness variables t-2 onwards, one step lagged first differences of the same, state of location, year of observation lagged business envirnoment variables, and city averages of business envirnment variables.

**Table 10.  Oaxaca-Blinder decompostion of effect of business environment variables on growth**

|**Only businesses unaff**<br>|**ected by corruption**<br>||
|---|---|---|
|**Performance indicator:**|**H=high income high-growth states vs.**||
|Business environment|**L=low-income low -growth states**||
|variable|Combined effect<br>Endowment effect|Rate of return effect|
||_k_<br>_X_<br>_Ey_ |<br>Δ<br>)<br>(<br>,<br>_kL_<br>_H_<br>_k_<br>_kH_<br>_X_<br>_X_<br>−<br>β|)<br>(<br>,_L_<br>_k_<br>_kH_<br>_kH_<br>_X_<br>β<br>β<br>−|
|Power shortage|0.144<br>0.000|0.144|
|Labor regulation|0.019<br>-0.021|0.039|
|_Actualgrowthgap_|0.051||
||**H=low income high-growth states vs.**<br>**L=low-income low -growth states**<br> <br>||
||Combined effect<br>Endowment effect<br>_k_<br>_X_<br>_Ey_ |<br>Δ<br>)<br>(<br>,<br>_kL_<br>_H_<br>_k_<br>_kH_<br>_X_<br>_X_<br>−<br>β|Rate of return effect<br>)<br>(<br>,_L_<br>_k_<br>_kH_<br>_kH_<br>_X_<br>β<br>β<br>−|
|Power shortage|0.144<br>0.000|0.144|
|Labor regulation|0.094<br>0.000|0.094|
|_Actualgrowthgap_|0.052||

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