What Influences Firms’ Perceptions?
Abstract: Perceptions-based indicators are sometimes used to measure the quality of the business environment. For instance, firms are asked about the major constraints on business operations and expansion. Little is known, however, about what shapes their responses. In this paper, using perceptions-based indicators from 38 countries and 84 years from the World Bank Enterprise Surveys, we argue that firm responses are critically influenced by macroeconomic conditions. Paradoxically, we find that perceptions worsen during periods of high GDP growth. We also examine other indicators from the Enterprise Surveys which are objective measures of constraints and find that the objectives measures remain unchanged during high-growth years. We conclude that changes in firms’ perceptions over time may not reflect changes in the business environment.
