Structural Equation Model for Analyzing the Impact of Business Environment on Firm’s Growth

Hodud Essmui, Madeline Berma, Faridah Bt. Shahadan, Shamshubarida Bt. Ramlee, Mohd Fauzi Bin Mohd


The progress of any firm and the wealth it accumulates depends upon the business environment in which the firm functions. Firms of all kinds are strongly influenced by the business environment that they experience and a good business environment ensures their prosperity. In this paper, we have conducted a survey of the manufacturing firms in three different commercial strong Libyan cities to determine the influence of the business environment on the growth of the sales of the firms located in these three Libyan cities. The Structural Equation Model (SEM) method is used in this paper and the empirical variables are calculated for the purpose of the study. These results point to a strong correlation between the growth of the firm’s sales and the prevailing factors of corruption, crime, financing, infrastructure, business regulations and human capital. However, the research does not indicate any kind of relationship between the level of competition faced by the firm and its sales growth. To improve the Libyan business environment, it is necessary to frame effective policies and to enforce the Anti Corruption Law and also to finish the red-tape and bureaucratic hurdles. A legal system would have to be developed which provides sufficient finance for the businesses and a proper system of rules for the financial markets would also have to be developed.

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International Journal of Economics and Finance  ISSN  1916-971X (Print) ISSN  1916-9728 (Online)

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