indicates that high levels of fixed investment...will not be enough to spur growth’<sup>63</sup> As stated above, however, their conclusions must be qualified by possible problems due to simultaneity bias and the failure to check for robustness of their results with country dummies.

Commander and Svejnar (2007) include an objective measure of competition – ‘more than 3 competitors’ – in their regressions on otherwise subjective business climate indicators, which are not significant once country effects are controlled for. However, the competition variable is shown to have a very robust positive and significant impact on firm revenue even if country effects are controlled for.

Escribano and Guasch (2005) do not have a real competition variable, but do check for an impact of regulation on productivity with the variable: ‘Number of days spent in Inspection and regulation related work’. It is shown to impact productivity negatively in a significant way in almost all specifications. The authors ascribe some 12% of the variation in productivity to their combined ‘Red tape, corruption and crime’ variables, making it the most important set of variables. Beck, Demirgüç-Kunt and Maksimovic’s (2005) analysis of 54 WBES surveys includes a subjective ‘degree of legal obstacles’ variable, which is found to be negative and significant. Hallward-Driemeier, Wallsten and Xu’s (2006) examination of China includes the regressor ‘city-industry mean of the share of senior managers’ time in dealing with regulatory requirements’, which has a negative and significant impact on sales and employment growth, but is not a significant explanatory variable for firm productivity.

Hallward-Driemeier and Aterido (2007) highlight that the impact of the regulatory environment is not necessarily only negative. Regulations can have positive sides as well, especially if they are consistently enforced. Hallward-Driemeier and Aterido find that consistent enforcement of regulations has a clear positive association with employment growth in most of the developing world, though it is insignificant for Africa. The variable indicating management’s time spent dealing with the authorities has an ambiguous impact. In the full sample, it is positive in general but less so in Africa. The authors argue that while there seem to be some benefits associated with accessing public services, at ‘about 15 percent of management time, the marginal impact of additional interactions with the government is negative’<sup>64</sup> . On the other hand, pure red tape such as unnecessary delays in customs have significantly negative effects.

Aterido et al. (2007) use the same two indicators representing the regulatory framework: the relatively objective ‘% of management’s time dealing with government regulations’ and the subjective ranking of the statement ‘officials interpretation of regulations is consistent’.<sup>65</sup> The authors find that consistency of enforcement has a positive and significant effect in general, which is particularly marked for small firms. The authors

> 63 Bastos, F. and J. Nasir. 2004: 24.

> 64 Hallward-Driemeier, M., S. Wallsten and L.C. Xu. 2006: 9.

> 65 See Tables 6,7, 8 and 9.

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