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The nexus between business–investment climate and firm performance in the Middle East and North Africa (MENA) region

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  • Eleftherios Giovanis
  • Oznur Ozdamar

Abstract

Purpose - Effective business and investment climate can lead to a higher rate of investment, profits and improved productivity, through the creation of an institutional environment, where the state provides high-quality public goods. This study aims to explore the impact of the business–investment climate on firm performance in a sample of six countries in the Middle East and North Africa (MENA) region and Turkey. Furthermore, we extend our analysis to explore the impact of business–investment climate on the resource misallocation in Egypt and Turkey. Design/methodology/approach - The study used fixed effects models to investigate the relationship between the business and investment climate, expressed by the obstacles in state–business relations- and the firm performance, which is measured by the firm's value-added, the labour productivity and the total factor productivity To reduce the endogeneity coming from possible reverse causality and the perceptions about the business climate, an instrumental variables (IV) approach applying the two-stage least squares (2SLS) method was followed. The empirical analysis relies on data derived from the World Bank Enterprise Surveys. Findings - Based on estimates, the obstacles in business climate may reduce the firm performance measures by 15–40%. These findings indicate the importance of quality in the business climate and how the improvement in its efficiency can have a very considerable positive impact on firms' performance and thus on the overall economic growth of a country. Originality/value - This is the first study exploring the impact of business–investment climate on various measures of the firm performance and the resource misallocation in a large sample of countries in the MENA region.

Suggested Citation

  • Eleftherios Giovanis & Oznur Ozdamar, 2022. "The nexus between business–investment climate and firm performance in the Middle East and North Africa (MENA) region," Review of Economics and Political Science, Emerald Group Publishing Limited, vol. 7(4), pages 257-285, February.
    • Handle: RePEc:eme:repspp:reps-09-2020-0138
    DOI: 10.1108/REPS-09-2020-0138
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    Cited by:

    1. Oznur Ozdamar & Eleftherios Giovanis & Sahizer Samuk, 2020. "State business relations and the dynamics of job flows in Egypt and Turkey," Eurasian Business Review, Springer;Eurasia Business and Economics Society, vol. 10(4), pages 519-558, December.

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    More about this item

    Keywords

    Economic development; Governance; Middle East and North Africa region; Resource misallocation; State business relations; Total factor productivity; D73; K15; L5; O1; O57; O43; O49;
    All these keywords.

    JEL classification:

    • D73 - Microeconomics - - Analysis of Collective Decision-Making - - - Bureaucracy; Administrative Processes in Public Organizations; Corruption
    • K15 - Law and Economics - - Basic Areas of Law - - - Civil Law; Common Law
    • L5 - Industrial Organization - - Regulation and Industrial Policy
    • O1 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development
    • O57 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Comparative Studies of Countries
    • O43 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Institutions and Growth
    • O49 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Other

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