At the empirical level, some of the most interesting insights in the firm-level business climate literature have come from recent studies that look at interactions of business climate indicators with firm characteristics or with each other. For instance, HallwardDriemeier and Aterido (2007) interact IC measures with firm sizes to obtain more detailed results on the impact of the business environment on the performance of different types of firms. Honorati and Mengistae (2007) examine the interplay of regulation, infrastructure, financial constraints and corruption. They obtain some interesting results, for instance that all three aspects have significant influence on Indian industrial growth, yet their effect depends on the incidence of corruption. Most existing firm level studies have not considered these types of interactions, and more work in this direction could deliver interesting outcomes that lay the groundwork for more precisely targeted policy recommendations.

A key research goal highlighted by a number of authors is that once more surveys rounds become available, proper panel data regressions could test for the impact of _changes_ in the business climate on productivity, factor returns, and growth.<sup>99</sup> For instance, whereas current microeconomic studies predominantly aim to assess the variation in firm performance due to local and cross-country variations in existing constraints, panel data could allow an assessment of the impact of changes (reforms) in the shape of different constraints on firm performance. However, with only 3 survey rounds available at most, it is still relatively early for these types of studies.

Even the standard methodological approaches have not yet made full use of the large Enterprise Survey database. For instance, no best-practice study (properly accounting for endogeneity) of the relationship between firm productivity and the business climate has been carried out for the full, up-to-date Enterprise Survey database.<sup>100</sup> Likewise, ‘little analysis is available on the impact of infrastructure on manufacturing firm productivity’ in Africa.<sup>101</sup> More specifically still, there is a lot of scope to carry out detailed country studies such as that of China by Hallward-Driemeier, Wallsten and Xu (2006) or that of India by Honorati and Mengistae (2007) and Amin (2007). It is generally easier to correctly interpret econometric results in single-country studies, because outcomes are easier to connect to real-life circumstances and complementary data.

As noted above, a recent paper by Durlauf et al. (2008) argued that the effect of institutions is ‘likely to be through their influence on proximate growth determinants (factor accumulation, in this case) rather than through their effects on technological innovation.’ It would be interesting to explore this question further in a micro-context. So far, only a few papers have used measures of capital (or human capital) accumulation as dependent variable and there has been no systematic comparison to the results for total factor productivity.

> 99 See for instance: Dollar, D., M. Hallward-Driemeier and T. Mengistae. 2005: 30.

> 100 This has only been done with employment growth as dependent variable. See: Aterido, R., M.Hallward-Driemeier and C. Pagés, 2007.

> 101 Bigsten, A. and M. Söderbom. 2005: 15. However, there has been at least one paper on the relationship between employment growth and the investment climate in Africa.

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