|Variable|Description|
|---|---|
|Investment Rate|Three year average of Investment Rate;<br>Investment rate = Growth in Fixed Assets + Depreciation & Amortization;<br>Fixed Assets = Total Fixed assets, incl. tangible and intangible assets.|
|_Operational Performance_||
|ROA|Three year average of Return on Assets = Earnings Before Interests and<br>Taxes (EBIT)/Total Assets (%)|
|Productivity Growth|Three year average of Growth in log(Productivity) = log(Productivity)t–<br>log(Productivity)t‐1;<br>Productivity = Sales / Employment|
|_Explanatory Variables_||
|Assets|Total Assets (million euros)|
|Capital intensive|Total Fixed assets / Employment|
|Year|Year of report|
|Nuts2_c|Firm location, region fixed effects|
|Age|Natural logarithm of firm’s age in years|
|Young|Dummy that equals one if the firm is less than six years old|
|Industry|2 digit NACE Rev. 2 code|

_Notes: This table provides the definitions of the variables used in the analysis. Dependent variables are growth and operational performance indicators. Explanatory variables are independent variables._ b. The Subnational Doing Business data Data on the regional business environment come from the World Bank’s _Subnational Doing Business_ (SDB) which reports in four European countries with lagging regions: Italy (2013), Spain (2015), Poland (2015), and Romania (2017).<sup>10</sup> In line with the national‐level Doing Business reports, SDB provides an objective measure of business regulations and their enforcement through detailed gathering and analysis of qualitative information across a range of dimensions that shape the business environment faced by the firms. Each indicator covered in SDB provides a set of measures, typically on the steps (procedures), time, and cost to comply with regulations. These measures are comparable across locations,<sup>11</sup> allowing for ranking and assessing the distance of each location from the ‘global frontier’ (the top‐performing location). This paper focuses only on the time measurement (number of days) associated with each variable, as it tends to have the most variation across locations for all indicators, and also because it is expected to have the biggest impact on firms’ investment and expansion behavior.

While national‐level Doing Business reports cover 11 indicators,<sup>12</sup> SDB reports are more restricted in their coverage of the business environment, in part because not all indicators have sufficient variability at the local level. The focus for SDB is on indicators that measure the complexity and cost of regulatory processes affecting three stages in the life of a small‐to‐medium–size domestic firm: _starting a business_ , _dealing with construction permits_ , and _registering property_ . It also benchmarks the strength of legal institutions across the country by measuring _enforcing a commercial contract_ before a local court.<sup>_13_</sup>

> 10 With funding from the European Commission, _Subnational Doing Business_ studies were completed in Bulgaria and Hungary in parallel with the study in Romania in 2017. However, uncertainty about the timing of the results, they were not included in this analysis. Additional studies are planned for Portugal, Czech Republic, the Slovak Republic, and Croatia in 2018‐2019.

> 11 At the national level, 190 countries were included in the 2017 DB report 12 Starting a business, dealing with construction permits, getting electricity, registering property, getting credit, protecting minority investors, paying taxes, trading across borders, enforcing contracts, resolving insolvency, and labor regulation (this last one is not included in the ranking).

> 13 In some Subnational DB reports, trading across borders and / or getting electricity is also covered.

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