The Impact of Business Obstacles on Firm Growth and Job Stability in East Asia and Pacific Nations

Abstract

Economic sustainability is closely linked to firm growth and employment stability, making them of great interest to policymakers and business leaders. Insights into the factors that impact employment growth and employment stability aid decision makers to develop policies that encourage economic growth and economic sustainability. This study used World Bank Enterprise Survey data to examine the effect of the business obstacles of financing, labour regulation, and under-skilled workforce on firm growth and on employment stability, estimated by the proportion of permanent to non-permanent workforce in East Asia and Pacific nations. The instrumental variables (IV) method was used with two-stage least squares (2SLS) to account for potential endogeneity between the business obstacles and employment growth and the proportion of permanent to non-permanent workers employed by firms. In addition, the quantile method was applied to capture the partial effect of the reported obstacles across different segments of firm growth. Findings included a significant negative effect of the financing obstacle on employment growth and therefore firm growth, particularly at the lowest levels thereof. In addition, financing and labour regulations obstacles have a significant, negative effect on the proportion of permanent employees in a firm’s workforce.