Existing literature has studied the effects of business environment on business creation, private sector growth, and economic development. Using data from Philippine cities and municipalities from 2011 to 2015, this paper tested for the relationship between business creation and the ease and cost of doing business. The results provide evidence that the overall ease and cost of doing business is indeed associated with business creation, but the relationship becomes more apparent with disaggregation. In particular, lower cost of doing business is found to be a much stronger predictor of business creation than ease of doing business. The specific indicators that drive this relationship are minimum wage, price of electricity, price of water, and price of land from the ‘cost’ dimension, and number of days it takes to process a new business permit from the ‘ease’ dimension. This has implications on policy-making, especially in designing programs that target firm creation. The relationship between business creation and the ease and cost of doing business also changes across city and municipal income levels. Among the poorest municipalities, ease and cost of doing business loses its importance as a determinant of business creation; governance indicators become more important.
