Exploring the heterogeneous effects of the investment climate on employment and productivity in Nicaragua
DOI:
https://doi.org/10.5377/reice.v1i2.18867Keywords:
Investment climate, Business performance, Microenterprises, Financing, Electrical infrastructureAbstract
Using data from the World Bank's 2010 and 2016 Enterprise Survey, this research analyzes how the business climate affects the performance of Nicaraguan companies. The cell average method was used to prevent endogeneity, where each firm faces the average investment climate conditions of the activity and size to which it belongs in the initial period, instead of its own conditions at the current period. The results confirm that there are significant differences in the investment climate conditions and their effects are non-linear. Microenterprises increase employment and productivity with access to financing but face greater credit restrictions. The regulatory burden also affects companies differently depending on their size: large companies face more inspections and perceive customs regulations as significant obstacles but are more efficient in handling them. Microenterprises, although they spend less time on regulations, face higher relative costs due to informal payments and practices, which negatively impact their growth. Deficiencies in electrical infrastructure have a dual negative effect: they affect employment growth by microenterprises, suggesting that these companies are unable to substitute capital for labor to mitigate these problems, and they also affect the productivity of large companies.
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