Navigating Obstacles: How Relative and Isolated Regulatory Burdens Shape R&D Investment Across Regions

Abstract

The relationship between the business regulatory environment (BRE) and firm-level innovation is shaped not only by the presence of regulatory burdens but also by how these burdens are experienced in absolute terms or relative to peer firms. This paper introduces a novel distinction between isolated BRE metrics—those directly experienced by the firm—and relative BRE metrics, which capture perceived obstacles in comparison to other firms in the same location. Using data from the 2019–2022 World Bank Enterprise Survey across 63 countries, we analyze key regulatory factors such as tax policies, permits, political stability, and corruption. Our findings, based on the logit regression model, reveal regionally heterogenous effects: for instance, tax administration consistently discourages R&D in Asia and the Pacific, while isolated political instability increases R&D probability in Africa. The results illustrate that businesses in regions with unfavorable business environments may still invest in R&D, which aligns with theories of strategic adaptation to unfavorable conditions. Furthermore, relative metrics, often omitted in policy debates, capture additional behavioral variation overlooked by isolated measures. These findings highlight the limits of uniform policy prescriptions and emphasize the importance of context-specific strategies. Policymakers must recognize whether firms perceive regulatory barriers as individual or comparative and design support mechanism accordingly, especially in environments marked by institutional weakness or uneven enforcement.

Department(s)

Economics

Second Department

Psychological Science

Comments

World Bank Group, Grant None

Keywords and Phrases

R&D; SDG-9; Sustainable development; Tax policy; World Bank Enterprise Survey

International Standard Serial Number (ISSN)

2950-5240

Document Type

Article - Journal

Document Version

Final Version

File Type

text

Language(s)

English

Rights

© 2025 Elsevier, All rights reserved.

Publication Date

01 Dec 2025

Link to Full Text

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