How Does Investment Climate and Business Environment Impact Firms' Efficiency in a Post-Conflict Setting? Evidence from Democratic Republic of Congo
The paper explores links between business environment and firm efficiency in Democratic Republic of Congo (DRC). It builds on 105 firms from the World Bank Enterprise Survey which are observed over 2006-2010, that is the year the first democratic government was installed and five years later, at the end of the political term. The findings of the paper show that, five years after conflict in DRC, firms’ efficiency rises from 0.0707 to 0.0742 over a scale spanning from 0 to 1. The mean-comparison test indicates that firm’s efficiency in DRC was not significantly improved five years after democratic election 2010. Over the same period, the Hostility Business Environment Index (HBEI) rises from 0.4914 to 0.5765. The essential source of that variation was the deterioration of Business and government relationship. The weight in the index was 28.28% in 2006 against 57.09% in 2010. Using Tobit regression, the study reveals a positive link between hostility business environment and firm efficiency. Quantile Regression outputs show that only firms able to pay the highest bribes, and thus, the most efficient profit from those disorders. This counter intuitive result may find an explanation for the corruption practices used by businesspeople to overcome environment constraint and inefficient barriers.