The heterogeneous growth effects of the business environment: Firm-level evidence for a global sample of cities

Abstract

Using firm-level data covering 709 cities in 128 countries, we examine the role of a comprehensive list of business and institutional environment variables at the sub-national level in explaining firm employment and productivity growth. We find basic protection (with corruption as an element), access to finance and infrastructure, and the existence of a strong agglomeration environment to be critically important. By contrast, human capital and a list of refined business environment variables related to labor regulations, tax, and land access are unimportant. We also find that the effects of the business environment vary according to firm size, age, and the host country’s level of development.