The Interdependence Between Ease of Doing Business, Innovation, and Competitiveness of Nations.
| Autor | Morano, Rogerio Scabim |
INTRODUCTION
The challenge of creating a favorable business environment motivates researchers, international institutions, and policymakers to seek alternatives to improve the economic exchange process. The creation of reports that rank the environment around companies and the ease of doing business is one of the initiatives in this direction. The World Bank's Doing Business score is presented in one of these reports, comparing business regulation in 190 economies (International Bank for Reconstruction and Development [IBRD], 2020). This data has supported many studies and decision-making processes (Estevao et al., 2020).
Public managers in numerous countries have implemented reforms seeking to improve processes and reduce costs and time to open new businesses to promote the public sector's development and economic growth (Klapper & Love, 2010). The literature supports this policy by offering evidence of the challenges to starting, operating, and developing businesses, including the regulatory restrictions among these difficulties (Crafts, 2006; Herrendorf & Teixeira, 2011).
According to the literature, one of the reasons for countries' economic development is how much governments promote entrepreneurship or the ease of doing business. Therefore, it is important to stress that government actions must avoid interventionism and be limited to creating laws that facilitate spontaneous transactions among the various economic agents. Thus, governments must provide a framework for a highly collaborative environment (Leal-Rodriguez & Sanchis-Pedregosa, 2019) that favors the emergence of innovative solutions.
In this aspect, innovation generates positive effects on improving companies' performance and, consequently, increases nations' productivity and competitiveness (Barrichello et al., 2020; Dutta et al., 2016; Feldmann et al., 2019; Nelson & Winter, 1982; Pavitt, 1984; Rosenberg, 1982; Schumpeter, 1934). A key element for entrepreneurship development is a good business environment in countries, indicating a close relationship with the ease of doing business (Dougherty, 2007). Thus, it is worth understanding how the ease of doing business affects innovation and competitiveness when analyzed concurrently.
The ease of doing business, according to the World Bank (IBRD, 2020), means that a country's regulatory environment is more conducive to starting and operating a local company, that is, entrepreneurship facilitated by public policies, legal system, and bureaucracy in the country, increasing its global competitiveness. In turn, for this work, innovation is linked to investment in research and development (R&D), considering mainly the
private sector, the existence of high-quality research institutions that generate the necessary knowledge for the development of new technologies, collaboration in R&D between universities and industry, and protection of intellectual property (Schwab, 2019). Against this backdrop, this study is guided by the following research question: What is the role of ease in doing business in the existing relationship between innovation and competitiveness of nations? Therefore, this study aims to assess whether the ease of doing business can be considered as an alternative path (indirect path) between innovation and competitiveness of nations, improving the understanding of the effect transfer between these two variables. If this possibility is demonstrated, elements are added to a relationship already enshrined in the literature (innovation--competitiveness of nations) (Barrichello et al., 2020; Dutta et al., 2016; Feldmann et al., 2019; Jacomossi et al., 2021; Nelson & Winter, 1982; Pavitt, 1984; Rosenberg, 1982; Schumpeter, 1934), but always open to adding new possibilities that allow understanding the development of each country, contributing to the prosperity of its populations.
This work's contribution rests in helping governments and their regulatory strategies to improve the business environment and governance to support local and international trade. In practical terms, the work intends to present to companies and investors the importance of the ease of doing business for the application of their resources in different countries, as well as to emphasize the need to be concerned with the methodology for calculating the index so that their decisions do not be biased by this factor. In addition, the study allows the joint assessment of the three variables (innovation, ease of doing business, and competitiveness), together, in a single structural model, better representing the reality experienced by the global business environment.
RELATIONSHIP BETWEEN INNOVATION AND COMPETITIVENESS OF NATIONS
Innovation and its effects on improving companies' performance have been the object of organizational and economic studies developed to support the competitiveness and productivity of nations. Usually, the role of innovation is highlighted in the classic literature on the subject (Nelson & Winter, 1982; Pavitt, 1984; Rosenberg, 1982; Schumpeter, 1934), thus enhancing the explanation for the growth of companies and nations' competitiveness and the effects of such growth on the production of wealth. This importance is corroborated by Dutta et al. (2016), who point out that innovation has been an important element to boost economic progress and competitiveness.
Porter (1990) postulated that it is not nations that are powerful, but rather the companies that operate within their territories. Therefore, countries depend on their productive sectors to create business environments capable of innovating faster than their foreign competitors. Furthermore, several authors highlight the importance of innovation as an essential factor in productivity gains and consequent countries' competitiveness (Barrichello et al., 2020; Feldmann et al., 2019; Schreiber et al., 2016). In this direction, Gordon (2016) proved that the growth of a country is not directly related only to innovation but also to increased productivity. In part, this explains why many governments are putting innovation at the center of their growth strategies through industrial, and research and development (R&D) policies.
In addition, other approaches have gotten emphasis like those associated with organizational capabilities development that turns companies more innovative. For instance, the role dynamic capabilities guide companies to move more consistently in turbulent markets (Crossan & Apaydin, 2010; Ichijo & Nonaka, 2007; Panayides, 2006).
When it comes to the relationship between innovation and productivity, there are several models. One of them suggests that companies incorporate external knowledge and use it in their internal processes, achieving innovative products (Armstrong & Lengnick-Hall, 2013; Brettel et al., 2011; Cohen & Levinthal, 1990; Jacomossi & Feldmann, 2020; Najafi-Tavani, et al., 2014; Ritala & Hurmelinna-Laukkanen, 2013; Zahra & George, 2002).
Osuna-Alarcon and Rodriguez-Hernandez (2020) show the education role and entrepreneurial attitude to reach for successful business development. For the authors, innovation should be seen as a base to improve companies' competitiveness. Regarding the culture of innovation, it is important to show the role of R&D as a precedent element of the diffusion process of innovation, relating this investment with better performance (Bae, 2016; Barrichello et al., 2020; Bertrand & Mol, 2013; Spezamiglio et al., 2016).
It is worth mentioning that several studies emphasize the role of foreign investments by multinationals in subsidiaries, enabling knowledge to spill over into the country that receives the new technologies, increasing productivity and competitiveness (Blomstrom, 1986; Blomstrom & Kokko, 1998; Fleury, et al., 2018; Liu, 2008; Morano et al., (in press); Suyanto & Salim, 2012; 2013).
Finally, the relationship between innovation and competitiveness is enshrined in the literature (Feldmann et al., 2019; Ichijo & Nonaka, 2007; Nelson & Winter, 1982 Schumpeter, 1934). However, for companies to develop their innovative capabilities, the existence of a business environment that favors this type of practice is necessary (Melo et al., 2017; Porter, 1990; Santos et al (updated to 2023).
RELATIONSHIP BETWEEN INNOVATION AND EASE OF DOING BUSINESS
The Ease of Doing Business ranking, developed and published by the World Bank, supports public and private decision-makers to assess the level of regulatory performance of countries over time. It captures the difference between each economy from the best regulatory performance observed in each of the indicators that make up the index. One can also assess the performance gap between countries by assessing changes in their regulatory environments over time (IBRD, 2020). Innovation and the ease of doing business have a strong impact on countries' economies. Together, they impact information sharing, the development of information and communication technology (ICT), and citizens' per capita income (Alderete, 2020). Jerbashian and Kochanova (2016) analyzed how regulations for doing business in countries affect investments in ICT. Such investments decrease as the costs of starting and operating a business and registering property increase. Investments increase when legal rights are secured. Dougherty (2007) concluded that there is a relationship between the ease of doing business and innovation development so governments should act, above all, to improve the business environment of countries, to strengthen this relationship.
Chaotic management systems do not favor creativity and innovation as low group cohesion leads to disorganization. The established rules and standards end up prevailing, so doing business is difficult. At the same time, the group's high cohesion creates an organizational structure that supports the generation of creative results, facilitating decision-making and doing business (Jacomossi & Feldmann, 2020; Tognazzo & Mazzurana...
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