employees collected three fiscal years before the survey fiscal year, we focus on permanent full-time employees rather than general full-time employees.

The firm growth rate is calculated as the log difference between the current number of employees and the number of employees three fiscal years before the survey fiscal year. The formula for employment growth is as follows: where ��� is firm size, and ���� employment growth, for firm _i_ at time _t_ .<sup>3</sup> The description and summary statistics for the employment growth variable are reported in table 1.

World Bank Enterprise Surveys are conducted to provide information on different aspects of the business environment and the performance of firms. The core questionnaire, which contains survey questions answered by business owners and top managers around the world, provides both subjective and objective information on the business environment that firms confront. The questionnaire includes a section asking firms to rank 15 components of the business environment, indicating which represent the biggest obstacles, and to evaluate these 15 components on a scale of 0–4 (0 being no obstacle, 1 a minor obstacle, 2 a moderate obstacle, 3 a major obstacle, and 4 a very severe obstacle). Summary statistics for the related variables are provided in table 1.

These subjective evaluations show the severity of obstacles across regions and countries. This makes it possible to identify the top obstacles and examine which obstacles firms consider to be the most important. But because the data are subjective—reflecting entrepreneurs’ perceptions of the impact of the business environment on firm operation, with successful entrepreneurs perhaps likely to consider the business environment to be less restrictive—we need to control for firm characteristics in explaining firm growth. In addition, we need to include objective measures of business environment constraints.

The World Bank Enterprise Surveys provide a large set of objective measures of business environment constraints. In addition to subjective information on access to finance as an obstacle, the questionnaire also collects objective information on aspects of financial access, allowing us to create several variables: _Loan_ is a dummy variable indicating whether a firm has a loan or line of credit from a financial institution or an overdraft facility _. Credit constraint_ is a dummy variable indicating whether an establishment did not apply for loans or lines of credit for one or more of the following reasons: application procedures for loans or lines of credit are complex, interest rates are not favorable, collateral requirements are too high, the size and maturity of loans are insufficient, getting bank loans requires making informal payments, or the establishment did not think its application would be approved.<sup>4</sup> _Sales credit_ is a dummy variable indicating whether the firm has positive purchase of its material inputs or services paid for after delivery (about 70 percent of firms

> 3 ln(1+ _X_ ) is considered approximately equal to ln( _X_ ). We therefore use ln(1+ _X_ ) to compute the log of the number of employees, since some firms have zero employees in a specific year but not in both years.

> 4 No dummy variable is included for firms applying for new loans or lines of credit whose applications were rejected because this information is available for only 14 percent of firms in the sample.

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