Role of regulatory quality toward a sustainable economic development: a dual study of ease of doing business and economic growth amid bank efficiency

Abstract

This study examines the role of regulatory quality toward the achievement of India's sustainable economic growth. India's economy is known for its policy structure that guarantees infrastructural development and ease of doing business (EOD). EOD is a mechanism for achieving a structural development that stems from the informal economy. This has impacted India's economy positively through the increase in the small and medium businesses and enterprises (SMEs) because of the increasing participation of private agents in building and developing the entire economy. Hence, this study chooses India's economy as a specimen to examine the possible contribution of the selected variables as they are considered prevailing economic factors in India's economic performance. The direct motive of this study is to test and compare the impact of regulatory quality on EOD and economic growth in pursuit of sustainable economic development. While the focus is on the role of regulatory quality on EOD and economic growth, other vital and prevailing economic factors (banking efficiency, FDI and labor force participation rate) in India are introduced to the modeling of this study. India's economy is known for its policy structure that guarantees infrastructural development and EOD. It will add to the growth and sustainability literature to investigate the economy with respect to the implication of regulatory quality and EOD toward achieving sustainable economic growth; hence, the need for this study. For insightful research into the objectives, this study adopts a two-model approach centered on economic growth and EOD. The study adopts Augmented Least Squares (RALS), newly developed RALS-EG (Engle and Granger test), fully modified ordinary least squares (FMOLS), and autoregressive distributed lag (ARDL) techniques for effective analysis and justification of the objectives of this study. The findings from this analysis revealed the importance of regulatory quality to both economic growth and EOD for India through a positive interaction with the two targeted variables (i.e., economic growth and EOD). EOD has a positive link with economic growth; bank efficiency has a positive link with both economic growth and EOD; FDI has a positive link between economic growth and EOD. This shows that FDI, bank efficiency, and EOD policies will foster sustainable economic growth for India.