**_<mark>(4) Access to finance.</mark>_** <mark>Ayyagari, Demirguc-Kunt and Maskimovic (2008) explore whether financial development promotes growth by fostering innovation and thus increasing efficiency, with such an effect occurring if the financial system has an important role in supplying capital to firms that are innovating. Ayyagari, Demirguc-Kunt and Maksimovic (2010) explore the role of corruption and tax evasion on innovating firms and firms that use external finance. In a similar vein, Aterido, Hallward-Driemeier and Pages (20119) examine the impact of access to finance, business regulation, corruption and infrastructure on employment growth. With this literature as motivation, we test whether the following measures are associated with firm performance:</mark>

- **<mark>Sources of financing for new investments</mark>** <mark>. Fernandes and Pakes (2008) find that firms with higher TFP are more likely to receive loans, suggesting that loan-granting institutions are able to select out the more productive firms; and that states in which a disproportionate number of firms received loans are the states with less underutilization of both labor and capital.</mark>

**_<mark>(5) Access to quality physical infrastructure.</mark>_** <mark>Calderon and Serven (2004), using an infrastructure-augmented growth regression (including as non-infrastructure growth determinants indicators of trade openness, government burden, inflation and real exchange rate overvaluation, plus indicators of human capital and financial depth), show that growth is positively affected by the stock of infrastructure assets, where their aggregate index of infrastructure stocks includes data from telecoms (the number of main telephone lines per 1,000 workers, also augmented by mobile phones), power (the electricity generating capacity of the economy in MW per 1,000 workers), and transport (the length of the road network in km per sq km of land area, also augmented by the railroad length), based on panel data of over 100 countries spanning 19602000.</mark>

- **<mark>Electricity</mark>** <mark>. Aterido, Hallward-Driemeier and Pages (2011) examine the incidence of power outages on firm outcomes, finding that poor infrastructure has a detrimental effect on the growth of all firms but the micro ones. Fernandes and Pakes (2008) find that firms which suffer more production losses due to electricity outages have lower TFP and underutilize both labor and capital.</mark>

It is important to note that this study deals entirely with constraints to productivity and innovation faced by existing establishments. We identify which aspects of the business environment are most important and potentially impactful in improving productivity and innovation within incumbent firms. We unfortunately cannot examine the constraints to increasing the prevalence of high-productivity entrants, which may have an even greater overall disruptive transformational growth potential than existing incumbent firms – as we do not observe those firms that could have entered but were prevented from doing so by prevailing constraints in the business environment. Thus, our analysis does not, and cannot, account for the productivity effects of increased industrial dynamism though entry and exit _per se_ .

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