Does investment climate matter For firm’s technical efficiency? An Application to middle eastern and North african manufacturing

Drawing on World Bank enterprise surveys, this paper shows that investment climate (IC) is correlated with firms' technical efficiency (TE) in eight manufacturing industries of 22 developing countries. Essential aspects of IC include the quality of infrastructure, the experience and education of the labour force, the cost of and access to financing, and different dimensions of government–business relations. The empirical analysis also illustrates that IC deficiencies in many Middle-East and North-Africa countries are associated with low TE. The exception is Morocco and, to some extent, Saudi-Arabia, where the IC and TE rank close to that of the sample's most efficient economies. The paper also highlights that industries more exposed to international competition, as well as small and medium domestic firms, exhibit a higher sensitivity to IC limitations