Assessment of impact of country business ranking on economic development: An empirical analysis

Khan, Mohd Naved Article Assessment of impact of country business ranking on economic development: An empirical analysis Global Business & Finance Review (GBFR) Provided in Cooperation with: People & Global Business Association (P&GBA), Seoul Suggested Citation: Khan, Mohd Naved (2024) : Assessment of impact of country business ranking on economic development: An empirical analysis, Global Business & Finance Review (GBFR), ISSN 2384-1648, People & Global Business Association (P&GBA), Seoul, Vol. 29, Iss. 3, pp. 30-41, https://doi.org/10.17549/gbfr.2024.29.3.30 This Version is available at: https://hdl.handle.net/10419/305967 Standard-Nutzungsbedingungen: Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden. Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen. 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If the documents have been made available under an Open Content Licence (especially Creative Commons Licences), you may exercise further usage rights as specified in the indicated licence. https://creativecommons.org/licenses/by-nc/4.0/ Received: Oct. 1, 2023; Revised: Nov. 8, 2023; Accepted: Nov. 29, 2023 † Corresponding author: Khan, Mohd Naved E-mail: [email protected] GLOBAL BUSINESS & FINANCE REVIEW, Volume. 29 Issue. 3 (APRIL 2024), 30-41 pISSN 1088-6931 / eISSN 2384-1648∣Https://doi.org/10.17549/gbfr.2024.29.3.30 ⓒ 2024 People and Global Business Association GLOBAL BUSINESS & FINANCE REVIEW www.gbfrjournal.org for financial sustainability and people-centered global business1) A ssessment of Impact of Country Business Ranking on Economic Development: An Empirical Analysis Khan, Mohd Naved† A ssistant Professor, College of Administrative and Financial Sciences, Saudi Electronic University, Riyadh, KSA A B S T R A C T Purpose: The World Bank's "Ease of Doing Business" index, among other business rankings, can help a country's economic progress by attracting foreign investments, encouraging entrepreneurship, and improving the business climate. Superior rankings indicate an optimised environment for business activities, which could boost investments, job opportunities, and overall economic growth. The research is conducted to assess the impact of a country's business ranking on economic development. Design/methodology/approach: The Structural Equation Modelling (SEM) method was used to assess the impact of a country's business ranking on its economic trajectory. The official World Bank report was used to obtain data from 2015 to 2021. Panel data of Global Innovation Ranking, Ease of Doing Business Ranking, and Business Freedom Ranking from 2016 to 2021 is the basis of this study. The researcher has used a conceptual framework to establish and understand the dependence among the dependent and independent variables. For measuring statistical association, the researcher has used structural equation modelling and path diagram along with correlation and regression analysis. The correlation has been used to assess their association, while the researcher has used regression to determine the impact of country business ranking. Findings: The investigator investigated the impact of India's standings in the Global Innovation Ranking, Ease of Doing Business Ranking, and Business Freedom Ranking on its Economic Development, specifically GDP, in this study. The study's findings show that India's business rankings have a significant impact on its economic development. Such global business rankings provide critical data points for policymakers, businesses, and investors to make informed decisions, thereby promoting economic growth. Furthermore, the study examined the effects of GDP growth on the combustion of fossil fuels, as measured in million tonnes, emphasising the environmental consequences of economic expansion. Research limitations/implications: It's imperative to note that this is just an estimate, and the actual relationship between the variables in the population may differ from this estimate. The estimate is based on the sample data used to fit the model and may not accurately reflect the true relationship in the population. Further analysis and interpretation of the model's goodness of fit and consideration of other factors, such as outliers or omitted variables, are essential to fully apprehend the relationship between "GIR" and the dependent variable. The results of global business rankings can help policymakers identify areas for improvement in their country's business environment. By focusing on the areas where their country is lagging behind, they can develop policies and initiatives to attract more investment, create a more favourable business environment, and support economic growth. Businesses can use the results of global rankings to evaluate potential locations for expansion or investment. It can provide insights into the ease of starting and running a business, access to credit, property rights protection, and other important factors to businesses. Investors can also use the results of global rankings to make informed decisions about where to invest their capital. Higher rankings indicate a more stable and favourable business environment, leading to ⓒ Copyright: The Author(s). This is an Open Access journal distributed under the terms of the Creative Commons Attribution Non-Commercial License (https://creativecommons.org/licenses/by-nc/4.0/) which permits unrestricted non-commercial use, distribution , and reproduction in any medium, provided the original work is properly cited. Khan, Mohd Naved 31 I. Introduction According to Besley (2015) and Fernández-Serrano and Romero (2014), a positive business climate is usually considered a key development determinant. The subject of how simple it is to do business and the elements that make it more difficult or easier to do so is a decisive issue related to economic growth (Romero Fernández & Serrano, 2014). This idea has led several administrative, academic, and other entities to create research projects or programmes to promote and simplify a better legal outline (Arruada, 2007, Krever, 2013). These "Better Regulation" legislation reform projects often involve the building blocks for enhancing the business climate. In addition to policy formulation, instrumentation was used to evaluate the effects of these policies, identify how nations change over time and create a countries' hierarchy with superior frameworks. Sometimes these studies are summarized in ranking, and although they are excessively simplified, they can rarely be ignored (Michaels 2009). These features of the country's Business ratings and their impact on economic development are the subjects of this study. In the literature, the topic of economic expansion is wellrepresented. The most frequently cited are Arestis et al. (2001), Beck and Demirgüç-Kunt (2006), and Levine (1998). Numerous research has employed the country business ranking; however, they often only consider one specific instant (Corcoran and Gillanders, 2015; Morris and Aziz, 2011; Schueth, 2011). The study aims to define the relationship between the business ranking of a country. (Global Innovation Ranking, Ease of Doing Business Ranking and Business Freedom Ranking) and the wealth created in a nation as calculated by the GDP growth rate and the number of registrations of new firms. Figure 1 shows India's Global Ranking of Global Innovation Ranking, Ease of Doing Business Ranking and Business Freedom Ranking. This figure shows that the country is making every possible effort to come up in the global ranking. Since 2015, India has consistently ranked among the 50 best countries in the Global Innovation Index (GII). In the 2021 edition of the GII, India was ranked 48th out of 141 economies. World Intellectual Property Organization (WIPO) published GII and measures a country's innovation performance based on various factors, including research and development, creativity, and market sophistication. India has consistently improved its position on the ease of doing business index over the past few years. The World Bank publishes the index annually and measures the regulatory environment of starting, operating, and closing a business in 190 economies. India has had a relatively stable ranking in the Index of Economic Freedom over the past few years and has remained in the bottom half of countries ranked. Recent reports indicate that India's R&D expenditure on total GDP fluctuates, reaching its peak in 2020 and lower in 2016. The unemployment rate has remained relatively stable, with a slight increase in 2020. The number of business registrations has steadily increased, peaking in 2021. The GDP growth rate has also fluctuated, with a significant decrease increased investment and economic growth. Global business rankings generally provide valuable information that policymakers, businesses, and investors can use to make informed decisions and support economic development. Originality/value: I hereby attest that the research paper I have submitted is the result of my own independent and unique labor. All of the sources from which the thoughts and passages were derived have been properly credited. The work has not been submitted for publication anywhere and is devoid of any instances of plagiarism. Keywords: Global innovation ranking, Ease of doing business ranking, Business freedom ranking, GDP growth, Environment degradation GLOBAL BUSINESS & FINANCE REVIEW, Volume. 29 Issue. 3 (APRIL 2024), 30-41 32 in 2020 and a rebound in 2021. It is imperative to consider the context and additional factors that may have influenced these trends when evaluating the health of the Indian economy. There is considerable literature on the influence of state business ranking on economic development. Generally, higher business rankings are believed to attract foreign investment, encourage entrepreneurship, and drive innovation, which in turn boost economic growth and development. Several pieces of research have found a positive correlation between a country's business ranking and various indicators of economic development. However, it is important to note that business rankings are not the only factor affecting economic growth. They should be considered together with other factors such as macroeconomic stability, infrastructure development and education levels. Additionally, some studies have found that business rankings can have limitations and may not correctly reflect the complexity of the business environment in a given nation. Overall, while business rankings can provide valuable insights into a country's business environment, they should be used in conjunction with other sources of information and wouldn't be the sole determinant of investment or business decisions. II. Review of the Literature The ideal framework for company growth has long been a topic of discussion among academics, industry professionals, and economic actors. Examining how particular elements, such as the system of finance, the dynamics of small enterprises, or their ingress to financing, influence this growth is one approach to accomplish this. However, other organizations have taken a different route. They created unique metrics for analyzing the ease of doing business and/or resulting competitiveness, linking the regulatory and business environment to competitive capabilities. An essential set of events that have occurred repeatedly since the turn of the century is supported by the tight connection between enhancing the legal environment and growth. The landmark study of McLiesh, Djankov and Ramalho (2006) supports this connection. This argument is further supported by the adoption of better regulatory policies, which have become common in Europe since the turn of the century (Radaelli 2007). However, some scholars link this motivation for greater regulation to the desire to close the gap between the lawmaker and the populace without directly contradicting the preceding assertion. Following the actions that the EU took to handle the recent economic slump and the necessity to restore the credibility of the authority, this gap between the two has dramatically Figure 1. Country global ranking Khan, Mohd Naved 33 expanded (de las Heras, 2019). Nonetheless, there is a strong correlation between increased regulation (legislation) and economic development. The World Bank has been releasing its country business ranking report, a hierarchical nation index, since 2004. The index is made up of a main indicator called "ease of doing business" that is a function of sub-indicators, including "starting a business", "getting credit", "getting electricity", "registering property", "disbursing taxes", "determining insolvency", "enforcing contracts", and "shielding minority investors". Numerous evaluations, including one by an impartial panel, have been conducted on the report's reliability and methodology (Arruda, Azour, Labelle, & Wolff, 2013). Several flaws in the country's business ranking have been identified and are subject to continuous criticism. Similarly, Ani (2015) aims to research how business accessibility affected economic development in several Asian countries in 2014. The study examined 29 economies in East, Southeast, and South Asia. The 10 Doing Business Indicators (DBI) of the World Bank were used as business ease indicators, while the GDP was used as an economic growth indicator. Multiple regression analysis is used in the study to examine the connection between the ease of doing business and economic development. Klapper, Laeven, and Rajan (2004) researched to ascertain how the business climate affected the admission of new enterprises into an economy. They use cross-country data from the Amadeus database on businesses in Western and Eastern Europe. According to the report, entrance is made more difficult by high regulatory obstacles, particularly in sectors like computer services and communications (telephone, wireless, etc.), where entry costs are expected to be high. They point out that not all restrictions impact how a business enters the market but that excessive bureaucratic control of entrance tends to have negative impacts. Finally, the section showed that much research showed that attractive business conditions benefit a country's economic development. This research seeks a more thorough analysis utilizing panel data from 2016 to 2021 while drawing on the abovementioned works. Based on the literature, the following estimated framework in Figure 2 has been conceptualized, which shows the impact of Global Innovation Ranking, Ease of Doing Business Ranking and Business Freedom Ranking on Economic Growth (GDP). III. Impacts of Economic Growth on the Environment Economic growth has been shown to have negative impacts on the environment. As economies grow, they consume more resources and generate more waste and pollution, leading to environmental degradation (Kuznets, 1955). For example, the rapid industrialization and urbanization of developing countries like China and India in recent decades have increased air and water pollution, deforestation, and biodiversity loss (Liu et al., 2016). Economic expansion has indirect effects in addition to its direct impact on the environment. For example, people tend to consume more energy and goods as incomes rise, increasing greenhouse gas emissions and resource depletion (Stern, 2004). Furthermore, pursuing economic growth may lead to policies highlighting short-period economic expansions over long-period environmental sustainability (Dietz et al., 2007). Despite these negative impacts, economic growth can also provide opportunities for environmental improvement. For example, advances in technology and innovation can lead to more proficient use of Figure 2. Conceptual framework GLOBAL BUSINESS & FINANCE REVIEW, Volume. 29 Issue. 3 (APRIL 2024), 30-41 34 resources and cleaner production processes (Grossman and Krueger, 1995). Additionally, higher incomes may allow individuals and governments to invest in environmental protection and restoration efforts (Dasgupta, 2001). Carraher and Buckley (2000) explored the concept of strategic entrepreneurialism, focusing particularly on the challenges it presented in a global research context. They discovered that there were significant global problems when analyzing strategic entrepreneurialism. This included issues with the conceptualization and operationalization of key constructs, methodological inconsistencies across studies, and cultural biases that impacted the generalizability of findings. Their work shed light on the need for a more consistent and comprehensive approach to researching entrepreneurial strategies on a global scale. Byoun and Rhim (2005) conducted tests on two prominent theories of capital structure: the pecking order theory and the tradeoff theory. Through their tests, they found evidence that was more consistent with the pecking order theory than the tradeoff theory. Specifically, their results suggested that firms prefer internal financing to external financing, and when external financing is needed, they prioritize debt over equity. This contrasted with the tradeoff theory, which posits that firms balance the benefits and costs of debt and equity to reach an optimal capital structure. Chen and Zheng (2014) investigated the relationship between CEO tenure and the risk-taking behaviors of companies. They discovered that as CEO tenure increased, there was a corresponding rise in the level of risk-taking by the firm. The longer a CEO remained in their position, the more likely they were to engage in strategies and decisions that carried higher levels of risk. This could be due to the increasing confidence or the pressure to achieve outstanding performance as their tenure progresses. Luo and Jackson (2012) delved into the relationship between executive compensation, ownership structure, and firm performance in Chinese financial corporations. Their findings indicated that there was a significant relationship between the structure of executive compensation and firm performance. Particularly, firms with more equity-based compensation structures tended to perform better. Additionally, the ownership structure, especially the concentration of ownership, played a crucial role in determining executive compensation patterns and ultimately impacting firm performance. In their research paper titled "Are International Indices Good Predictors of Economic Growth? Panel Data and Cluster Analysis for European Union Countries", Nogueira and Madaleno (2017) Panel data analysis and cluster analysis were used to examine the connections between global indices of economic freedom, corruption, competitiveness, and economic growth in European Union (EU) nations. According to their findings, economic freedom and competitiveness indices had a +ve and significant correlation with economic growth. In contrast, the corruption index had a -ve and considerable correlation with economic growth. However, the authors also noted that the relationship between these indices and economic development varied across clusters of EU countries. This suggests that the diversity of economic, social, and political conditions across countries may limit their predictive power. In their research paper titled "Multinational Firm Growth and Sustainability Responses to Dynamics of Business Regulations in Host Market", Chewaka and Zhang (2019) aimed to investigate how changes in business regulations in host markets affect the growth and sustainability of multinational firms. They conducted a systematic literature review and analyzed data from 29 empirical studies. According to their findings, changes in business regulations had positive and negative effects on growth and sustainability. The authors identified several factors that moderated these effects, such as the type and scope of regulation, the size and age of the firm, and the level of institutional development in the host market. Chewaka and Zhang (2019) concluded that multinational firms have to accept a proactive and strategic approach to respond to changes in business regulations in host markets rather than simply complying with them. They also suggested that policymakers should consider the potential impacts of regulatory changes on multinational firms and take steps to minimize any negative effects. Khan, Mohd Naved 35 In conclusion, economic growth can impact the environment positively and negatively. While growth can provide opportunities for environmental improvement, it is important to consider its potentially negative environmental consequences and take steps to mitigate them. Although in this study, the researcher's main concern has been assessing the impact of ranking on GDP Growth, GDP Growth has been seen separately in the last section of the analysis. And based on the ranking literature following conceptual modal has been designed. IV. Research Objectives To measure the impact of Global Innovation Ranking, Ease of Doing Business Ranking, and Business Freedom Ranking on india's Economic Development. V. Research Methodology The research utilised the Structural Equation Modelling (SEM) technique, which is a robust analytical instrument, to thoroughly investigate the complex interrelationships between diverse factors that impact the economic trajectory of a nation. Simultaneous estimation of numerous interconnected equations was made possible by SEM, which facilitated a more comprehensive comprehension of the intricate dynamics at play in the relationship between business rankings and economic development. The information employed in this research, obtained from the authoritative World Bank report covering the period from 2015 to 2021, establishes a strong basis for the evaluation, guaranteeing a thorough and current investigation of the topic. By incorporating panel data spanning from 2016 to 2021, namely the Global Innovation Ranking, Ease of Doing Business Ranking, and Business Freedom Ranking, the temporal aspect of the research is strengthened, facilitating the detection of evolving trends and patterns. In order to decipher the complex interrelationships between the dependent and independent variables and establish a theoretical framework, the researcher has employed a conceptual framework. The framework functions as a strategic guide for comprehending the interrelationships and influences among the different components within the study's context, thereby enhancing the strength and reliability of the research design. A multifaceted approach has been employed to investigate statistical association and causation, which includes the utilisation of regression analysis, structural equation modelling, path diagrams, and correlation analysis. By employed structural equation modelling and path diagrams, the postulated relationships was visually depicted, provided clarity on the complex pathways by which business rankings might influence economic development. In brief, the research employed a methodological framework that incorporated various statistical tools, panel data analysis, SEM, and conceptual frameworks to guarantee an exhaustive and nuanced investigation into the correlation between business rankings and the economic trajectory of a nation. The study's findings are more credible and dependable due to the robust methodology employed, which provides significant contributions to the body of knowledge regarding the determinants of economic development. VI. Results In the result section, this can be observed that the used models have been mentioned below. In this model, the GDP Growth Rate has been predicted by ~ Global Innovation Ranking + Ease of Doing Business Ranking + Business Freedom Ranking. According to Table 1, the model has been estimated using maximum likelihood estimation with 7 observations and 11 free parameters. The model is a linear regression GLOBAL BUSINESS & FINANCE REVIEW, Volume. 29 Issue. 3 (APRIL 2024), 30-41 36 with "GDP Growth Rate" as the dependent variable and "Global Innovation Ranking", "Ease of Doing Business Ranking", and "Business Freedom Ranking" as independent variables. Table 2 provides information on model tests, including a baseline model with a chi-square value of 50.0 and 7 degrees of freedom with a p-value of less than 0.001. However, it is unclear what the baseline model represents or how it relates to the estimated model in Table 1. A positive beta number indicates a strong association between X and Y. The beta coefficient size reveals how strongly the variables are related. Table 3 of parameter estimates clearly states that Global Innovation Ranking, Ease of Doing Business Ranking, and Business Freedom Ranking positively affect India's economic growth (GDP), and all the independent variables and the dependent variable were found to be positively related and shown in Figure 3. VII. Regression Analysis, Path Model and Estimated Diagrams Table 4 shows that the GDP growth rate and the independent variables "EDBR," "GIR," and "BFI" have a somewhat positive correlation of 0.395, which suggests that the three independent variables and the GDP growth rate are related and this association also depicted in Figure 4. In this case, a correlation value of 0.395 indicates a moderate positive relationship between the three independent variables and the GDP growth rate; this means that as the values of "EDBR", "GIR", and "BFI" increase, the values of the GDP growth rate are also expected to increase. Further analysis and interpretation of the model, including regression analysis, is necessary to understand the relationship between the variables completely. The estimated value of 0.314 for the independent Estimation Method ML Number Of Observations 7 Free Parameters 11 Converged TRUE Loglikelihood User Model -82.802 Loglikelihood Unrestricted Model -82.802 Model 'GDP Growth Rate' ~ Global Innovation Ranking + Ease of Doing Business Ranking + Business Freedom Ranking Table 1. Models info Label X² df p Baseline Model 50 7 < .001 Table 2. Model tests Dep Pred Estimate Se 95% Confidence Intervals ΒZP Lower Upper GDP Growth Rate Global Innovation Ranking 0.314 0.701 Gdp Growth Rate Ease Of Doing Business Ranking 0.119 0.869 GDP Growth Rate Business Freedom Ranking 0.547 1.151 Table 3. Parameter estimates Khan, Mohd Naved 37 variable "GIR" in a regression model indicates that, on average, for every 1 unit increase in "GIR", the dependent variable GDP is expected to increase by 0.314 units, assuming that all other independent variables are held constant that can be seen in Table 5. The estimated value of 0.119 for the independent variable "EDBR" in a regression model indicates that, on average, for every 1 unit increase in "EDBR", the dependent variable (GDP) is expected to increase by 0.119 units, assuming that all other independent variables are held constant. The estimated value of 0.547 for the independent variable "BFI" in a regression model indicates that, on average, for every 1 unit increase in "BFI", the dependent variable (GDP) is expected to increase by 0.547 units, assuming that all other independent variables are held constant. VIII. Economic Development or Environment Degradation – A Different Perspective Economic development and the environment are closely interlinked, each significantly impacting the other. While economic growth can provide opportunities for people to develop their quality of life, it can also Predictor Estimate SE t p Intercept -56.126 72.718 -0.772 0.496 GIR 0.314 0.487 0.644 0.566 EDBR 0.119 0.226 0.525 0.636 BFI 0.547 0.789 0.693 0.538 Table 5. Model coefficients - GDP growth rate Figure 4. Correlation matrix GDP Growth Rate EDBR GIR BFI GDP Growth Rate Pearson's r - p-value - EDBR Pearson's r 0.395 - p-value 0.380 - GIR Pearson's r 0.451 0.888 - p-value 0.310 0.008 - BFI Pearson's r -0.301 -0.953 -0.888 - p-value 0.512 < .001 0.008 - Table 4. Correlation matrix Figure 3. Estimated framework