The second striking pattern in table 7 is that the effects both of labor regulation and of power shortages increase with the incidence of corruption. Labor regulation reduces the rate of investment by a greater amount in enterprises constrained by corruption than it does for those unaffected by corruption. Likewise, corruption seems to reinforce the effect of power shortages. A hypothetical increase in power shortages would reduce the rate of investment among businesses self-reportedly constrained by corruption than it does among those unconcerned by corruption.

The third striking pattern in table 7 is the importance of access to finance to investment decisions also. It is clear from the coefficients of the profitability term that investment is constrained by cash-flow only in low-income but high-growth states. Within this group of states, investment is sensitive to cash-flow regardless of the incidence of corruption. However, the sensitivity is smaller for businesses reportedly constrained by corruption.

These patterns hold up in table 8 as well where we get back to the all-states sample to estimate the impact of three contracting institutions in pairs by conditioning the investment rate regression on the incidence of corruption and one of the contracting institution variables at once. In the first four-column panel of the table we condition the regression on various configuration of the firm being constrained by some combination of labor regulation and corruption. In the second four-column panel, we condition the regression on values of the indicators of power outages and corruption. Here also we see that greater labor regulation reduces investment by more in businesses constrained by corruption (column 6). Likewise, more severe power shortages reduce investment by more by those constrained by corruption. Also investment is constrained by cash flow only in businesses that are unconstrained by corruption or labor regulation It turns out that the conclusions that we draw from tables 7 and 8 about the effects of corruption, labor regulation and power shortages are broadly confirmed by estimation results of the error correction model. Indeed, the only significant difference between the two sets of results seems to be that the error correction model provides what looks to be stronger evidence of investment being subject to financial constraints to the extent that lagged profitability terms are more generally positive and statistically significant. This is certainly the case in all three columns of tables 9, where the first lag of the profitability term is still negative and statistically significant as in the Euler equations specification, but the second lag is positive and statistically significant. On the other hand, the story that tables 9 tells about the role of labor regulation and power shortages is the same as that read from the previous tables. Thus it is clear from the first column of the same table that both labor regulation and power shortages represent a significant drag on investment rates. We also see from the second and third columns of the table that the same table that these effects are magnified by corruption to the extent that they are significantly larger for firms that are self reportedly constrained by corruption. Power shortages do not seem to have perceptible impact on businesses unconstrained by corruption, for which firms 15