Our results indicate that government regulation of business is an important determinant of growth and
a promising area for future research. The relationship between more business-friendly regulations and higher growth rates is consistently significant in various specifications of standard growth models, and
more consistently so than other determinants commonly used in the growth literature.
The impact of improving regulations is large. In Table 3, we analyze the magnitude by including
dummies for each quartile of the business regulation index in the OLS regressions. Improving from the
worst (first) to the best (fourth) quartile of business regulations implies a 2.3 percentage point increase in
average annual growth.