# **1. Introduction**

The Investment Climate (IC) surveys (or Enterprise Surveys) have been created as part of a new strategy by the World Bank to put more emphasis on the intangible assets of developing countries such as knowledge, institutions and culture.<sup>4</sup> This new set of information that is becoming available to both scholars and policy makers is intended to be a valuable instrument to help improve our understanding of the economic, social, political and institutional factors determining economic growth, particularly in emerging and transition economies. However, at another level, IC surveys are also a source of trouble for researchers. In general, economic data are far from being perfect and when one is carrying out econometric or statistical analysis with a typical dataset too often we have to deal with the problem of missing values.<sup>5</sup> IC datasets are not an exception to this. Their imperfections make our job difficult and often even impossible (Griliches, 1986).

Incomplete data is an ubiquitous problem and standard econometric and statistical methods have nothing whatsoever to say about how to solve it. The simplest solution to this problem is to exclude from the analysis any cross-sectional observation with any missing value in it. This strategy is commonly known as _casewise deletion, listwise deletion_ or _complete case analysis_ . The advantage of this method lies obviously in its simplicity. The disadvantage is also rather evident to anyone who has used it: in many applications, _casewise deletion_ excludes from the analysis a large fraction of the original sample. In the context of IC surveys, this is quite a high cost in terms of information lost, as well as the monetary cost arising from losing a large proportion of very expensive interviews.

The debate we wish to introduce is whether the researcher should apply some treatment on missing values when using investment climate surveys (ICSs) or rather whether it is preferable to operate with the complete case only. One of the main characteristics of the ICSs is the wide set of information they provide. Concretely, the surveys have been designed to perform a variety of economic and statistical analyses, among which especially interesting are those linking investment climate variables and several measures of firms’ economic performance, such as productivity, labor demand, sales, exporting activity, FDI propensity, etc. This means having matrices of data with a remarkably large number of rows and therefore the possibility of using econometric models with a wide set of right hand side variables. Unfortunately, in many cases the problem of missing data is so serious that it prevents us from using those kinds of models. In some of these cases the missingness problem reduces the cross sectional observations available in the complete case to even 0% of the original sampling frame.<sup>6</sup> Should the researcher therefore

> 4 Key determinants of the investment climate, which are included and properly measured in the Investment Climate (IC) series of surveys, include physical and institutional infrastructure, economic and political stability, rule of law, infrastructure, approaches to regulations and taxes, functioning of  labor and finance markets, and broader features of governance, such as corruption. The World Bank group has long been a supporter of investment climate reform, recognizing the importance of shaping a business environment conducive to the successful start-up and operation of firms of all sizes in all sectors.

> 5 Information is missing for various reasons. A sizeable fraction of the respondents refuse, forget or fail to answer some questions. In other cases, even well-trained interviewers may neglect to ask some questions. Sometimes respondents just say they do not have the information available to them or they do not know the answer to the question. Some questions are simply not applicable to some respondents (see Allison, 2001). All of these cases may be applicable to IC data.

> 6 The number of observations available in the complete case decreases as we consider more and more investment climate variables. If we consider all the variables included in the survey, the complete case due to missing cells is

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