Impact of Local Self-Government Institutions on Creating a Business-Friendly Environment: Multi-Criteria Analysis

Impact of Local Self-Government Institutions on Creating a Business-Friendly Environment: Multi-Criteria Analysis

Jelena Stanković (University of Niš, Faculty of Economics, Serbia) and Igor Novaković (University in Pristina/Kosovska Mitrovica, Serbia)
DOI: 10.4018/978-1-4666-7266-6.ch018


The chapter objective is to demonstrate application possibilities of Multi-Criteria Analysis (MCA) in the specific local economic development problem in Serbia that refers to assessment of Local Self-Government (LSG) institutions' capabilities to act in order to create business-friendly environments and increase entrepreneurial activities. The primary aim of the chapter is to formulate an adequate multi-criteria model for evaluation of institutional cooperation between business councils, as representatives of local authorities and the business community in observed LSG units. Results indicate inadequate quality and functionality of the business councils, although cooperation has been established between the business councils, as a local government institution, and representatives of business community. Data analysis is conducted using relevant statistical methods. For multi-criteria analysis of subjective preferences of Local Economic Development (LED) offices has been applied Analitic Hierarchy Process (AHP).
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Entrepreneurial activities are very important for inclusion of developing local self-government units into national economy. Therefore, increase of entrepreneurial activities is seen as an opportunity for providing growth in developing LSG. A country representative bodies and institutions have a great role in creating business environment. However, they are not the only ones that should be taking actions and making positive environment for business activities. Local governments can also take part in encouraging entrepreneurship and business prosperity. They can create micro climate, which should make their communities recognizable and favourable for entrepreneurs. One of the first steps includes development of local economic strategies and plans with purpose of reducing risks for developing business and creating stable business environment. The chapter summarizes the problems and efforts concerning business environment improvements that local communities in Serbia were facing during the last two decades and the factors that influenced the reduction of business activities (Antic et al., 2013). Local governments in some cities have already realized the importance of local actions and discovering of local comparative advantages for increasing business activities and making better position inside regionally unbalanced Serbian economy (Stankovic et al., in press).

Two of the most influential determinants on business activities are business environment and the state and local government bodies’ ability to deal with specific problems in creating stable and favorable business environment. Especially in the period of the recent economic crisis these two factors have been analyzed from many different aspects (e.g. Grilli, 2011; Lavric, 2010; Bumgardner et al., 2011; Nicolescu et al., 2011). Similar conclusions can be found in research conducted by Ciocarlan-Chitucea and Popescu (2010), Norwood (2011), Dunkelberg and Wade (2012) as well as Nicolescu and Nicolescu (2013). The main conclusions of all mentioned scientific papers and studies refer to the multiple influence of the business environment on the business activities and the crucial role of the state institutions in developing and enabling business environment.

Some other studies show that local governments are likely the primary policy makers and regulators that entrepreneurs and small businesses encounter (McFarland et al., 2010). Unfortunately, many local governments do not know the impact of their efforts or what their most effective roles should be. Too often, local regulations can unknowingly create institutional and bureaucratic barriers that impede development and the speed to market for new businesses (Morris & Brennan, 2003; Roxas et al., 2008; Stankovic et al., 2013; Stankovic et al., 2014). Additionally, while most local governments have policies and programs designed to proactively support entrepreneurs and small businesses, these efforts are not necessarily well suited to meet the needs of the types of small businesses most likely to drive economic growth (McFarland & McConnell, 2011a).

Key Terms in this Chapter

Business Council: An advisory body which is aimed at encouraging economic activities at the local level.

Multi-Criteria Analysis: A set of methods aimed at selection or ranking alternatives on the basis of two or more relevant criteria.

Local Self-Government Institutions: The authorities at the local level.

Institutional Cooperation: Official cooperation between local government bodies and the economy sector.

Statistical Analysis: A set of methods that are used for data analysis.

Chi-Square Test: Well known statistical procedure that refers both to a statistical distribution and to a hypothesis testing procedure that produces a statistic that is approximately distributed as the chi-square distribution.

Analytic Hierarchy Process: One of the most popular methods of multi-criteria analysis developed by Thomas Saaty in 1980.

Business Environment: An environment in which business operates.

Weights Assessment: The procedure of determining the relative importance of criteria in the model.

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