The Impact of Ease of Doing Business and Regulatory Reforms on Investment Climate

Üçdoğruk Gürel Y.

ICE-TEA2021 7th International Conference on Economics, Ankara, Turkey, 9 - 11 April 2021

  • Publication Type: Conference Paper / Unpublished
  • City: Ankara
  • Country: Turkey
  • Dokuz Eylül University Affiliated: Yes


Institutional determinants, including the social, political, and cultural framework of a society, shape peoples’ perceptions of the desirability and feasibility to engage in creating new business ventures and investment. As investment decision is essential for the continuing dynamism of the private sector, many countries have focused on intensifying regulatory, political and macroeconomic institutional changes in order to improve the ease of doing business.  This paper uses panel data on FDI activity across economies to study how the ease of doing business and institutions affect the investment decisions of multinational corporations. The sample for the analysis is a pooled, cross sectional, longitudinal unbalanced panel of observations across countries with non-missing explanatory variables in World Bank Group Doing Business databases over the eleven-year period 2006 to 2019.  We consider a variety of formal institutions that controls for regulatory climate (Ease of Doing Business index that is made up of 11 areas of business regulation), institutions of governance that controls for political risk (Worldwide Governance Indicators that is made up of six aggregate indicators) and economic risk that controls for country’s current economic strengths and weaknesses (log GDP per capita, domestic credit to the private sector as a percentage of GDP) as predictors of multinational investment activity (FDI as a percentage of GDP). Our findings suggest that overall ease of doing business has a positive effect on decision to invest abroad. This relationship is most strongly driven by the Starting a Business component, but Getting Credit is also important. FDI inflows flourish after certain levels of economic and institutional progress.