The Nature and Role of CSR Companies in the Long-run growth: A Dynamic Panel Analysis

AbstractIn this paper, we explore the link between CSR companies’ business performance and economic growth over 25 countries during the 2000-2008 period. We extend standard growth equation by incorporating corporate social responsibility (CSR) variables and a dummy variable to measure the impact of government CSR supporting policies on economic growth. We find that CSR firms positively affect long-run economic growth. Specifically, countries without organized and supporting CSR environment can hardly expect to increase economy performance through the new growth channels generated by CSR companies (new markets and demand). Policy makers through state as the key CSR driver can boost long-run growth, eliminate jobless growth and working poor constraints. Government policies trying to encourage CSR should move from general, crude and regulatory to more targeted policies (tax benefits, positive public perception) and in turn stimulate long-run economic growth.

Keywords: word; Long-run Growth, Corporate Social Responsibility, Sustainable

Growth, Jobless Growth and Working Poor

JEL: M14, O47, O50, Q56

1. INTRODUCTION

Sustainable development is a broad issue covering not only environmental, but also

social and economic concerns. It is the development that addresses social problems in a new

way, respects the environment and contributes to positive economic gains with regards to

growth and development. This kind of development aligns the interests of the decision-

makers with those of the society, whilst putting focus on long-term benefits and well being of

the society. Activities performed by small, medium-sized and large companies have a strong

impact on social and environmental issues addressed within the concept of sustainable

development. Climate change, ozone depletion, bio diversity loss, human rights, labour rights,

child labour, women and minorities discrimination are all issues under direct or indirect

influence of business activities. In the lights of the recent financial and economic crises,

corporations found themselves under scrutiny. Transparency and accountability are taking

always so high priority. Corporations are creating and adding value through production of

goods and provision of services for the wider society and for their customers. In this process,

they are generating profits for their shareholders as well as welfare for the community within

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they operate, especially regarding the job creation. In this way, in order to create the added

value, the activities performed by companies should match with the impacts they produce to

the wider community. Their ordinary business practice needs harmonisation with the

changing environment.

Should small, medium-sized and large companies take this issue under review or must

they pay attention to business performance only? It is a simple question – what it matters for

them and why should they worry about the impact of their businesses on economic growth

and society? Socially responsible firms’ behavior might have a positive influence on

economic growth. On the other hand, firms would face additional costs associated with CSR

activities that could impair business performance. This would happen when CSR activities are

followed by lower profits. Given that argument, there is little agreement, whether CSR firms

are important for growth. The purpose of this paper is to determine the impact of CRS firms

on economic growth (positive or negative) and whether countries that strongly promotes CSR

can count on higher growth rates.

Extensive research on economic growth determinants is available in Barro , , Mankiw,

Romer and Weil , Aghion and Howitt , De La Croix and Mitchell and Acemoglu . Studies

identify about 21 variables and their possible connection with economic growth ranging from

starting level of GDP per capita to the degree of capitalism. None of these researches

investigates a possible nexus between corporate social responsibility and economic growth.

A large body of research as presented in Margolis and Walsh examines the

relationship between corporate social and corporate financial performance. However, only

few try to explore the direct link between CSR and economic growth. Somehow related

studies on the social capital issue in the works of Putnam , Helliwell and Putnam , Hall and

Jones , Knack and Keefer , Coleman search for the differences in growth rates through the

trust, societal structure, social capital role in the creation of human capital, economic payoffs

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to social capital and the role of civil society. Espigarez and González explore the link

between CSR indicator and economic growth components in OECD. They find a positive link

between CSR indicators and economic growth.

In line with the study of Espigarez and González (2006), we find CSR being

significant economic growth determinant. So, our empirical findings have important policy

implications. Higher share of CSR firms in the economy means higher economic growth.

Business performance of CSR firms positively affects economic growth and their associated

share in growth is 6% for 25 economies included in the panel. Empirical results show that

socially responsible behaviour should be taken into account when investigating the factors of

economic growth since in the future it is surely to become a more meaningful one. In fact,

countries with strong and supporting CSR policy framework achieve on average from +0.001

to +0.02 percentage points higher growth rates. Policy makers should focus their attention to

social and political structures accelerating productive economic activity by encouraging

socially responsible behaviour. The impact of CSR government activities on long-run growth

is limited for now (variable policy has low impact on growth). This is the reflection of the

poor CSR policy structure being too regulative and less simulative for CSR firms. A more

flexible and targeted government policy supporting firms resolute to engage socially would

result in higher growth rate differences.

The paper is organized as follows. In section 2 microeconomic and macroeconomic

benefits of social responsibility are set. Section 3 deals with the panel data techniques and

GMM model framework. Section 4 presents the empirical results while section 5 proposes

concluding remarks.

2. MICROECONOMIC AND MACROECONOMIC BENEFITS

OF SOCIAL RESPONSIBILITY

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The growing importance of corporate social responsibility is related to a number of factors.

Among them there are new sales, sourcing and labour markets, increasing competitive

pressure and the power of consumers, critical civil society, strategies for sustainable

investments, export guarantees and sustainability criteria, corporate governance, assumption

of public duties by the private sector, global environmental problems, avoiding criminal

prosecution . These could be called the „push CSR factors“. There are other factors that tend

to have a magnitude of positive macro and micro benefits (benefits on the company level).

According to firms engage in CSR:

To curry favour with their current and potential future customers,

To encourage employee loyalty and goodwill – reduce costly employee turnover,

increase productivity, and facilitate the recruitment of new employees,

To attract investors,

To promote community goodwill,

To improve a relationship with regulators,

To improve the bottom line.

Six conditions that encourage firms to engage in CSR are as in Reinhardt, F.L., Stavins, R.N.

and Vietor, R.H.K. :

The imposition of regulatory constraints that require a firm as well as its competitors

to carry out some beneficial actions,

Possibility that the sustainable production is not costly to the company,

Socially beneficial actions may reduce firms’ business expenses by an amount greater

than the cost of the actions themselves,

Socially beneficial actions may, in some cases, yield an increase in revenue,

Firms may choose to go beyond full compliance with environment, health, or safety

laws in order to improve their position in current or future regulatory negotiations,

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Some firms may use over-compliance to spur future regulation, which would provide

a competitive advantage over fewer adaptable firms.

To sum up, the key drivers of CSR are the whole array of incentives and risks faced by

companies to improve their business standards. According to Mazurkiewicz drivers are

market-based, usually beginning when a firm anticipates or responds to a risk associated with

the social, labour or environmental impact of a specific business practice. Generally, they can

be divided in three main groups: economic, social and political. Economic drivers may be:

company image/reputation, improved risk management, competitive advantage, pressure from

business partners, pressure from customers, pressure from investors, and competitiveness. The

social drivers are: pressure from NGOs/CSOs, pressure from local community, and research.

The political drivers are: improved standing with government, legal, regulatory drivers,

political pressure, and licence to operate. An economic dimension is aligned with the

dimension of sustainability. In order to be responsible, corporation must create economic

value and compete on the market among its main competitors. Better relationship with and

respect from the local and regional community, academic and civil sector enable corporations

to operate and to be recognized in the society. Corporation makes part of the society and has

to be supported. The political drivers could be seen as motivators for corporations to

implement CSR since the states could encourage these business practices through public

policies, social norms and citizen actions. On the other side, corporations’ responsible

business practices could have a strong influence on political actors whilst opting for stronger

promotion, support and facilitation of responsible business activities.

2.1. What’s the role of government in promoting corporate social responsibility?

CSR addresses the reconfiguration of the balance between institutions that all together

make up society. Institutions are sets of formal and informal rules based on common values

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specifying relationships and balances leading to agreed concepts and subsequent behaviour,

for details see Habish, A., Jonker, J., Wegner, M. and Schmidpeter, W. . Formal institutions

such as constitutions, laws and government policies interact with both informal institutions

such as social norms and „mental models of analysis“, and organizations such as business

entities, labour organizations and civil society, see Williams, C.A. and Aguilera, R.V. . The

mentioned institutions should work together in the harmony to establish the balance among

the world developmental challenges, businesses, cultural and social values and norms. If there

is a lack of engagement of some of the institutions, it would be harder to reach the harmony.

Thus the ideal vision of the world without poverty, the world of sustainable growth and

development could fail.

In recent years the social policy debate has expanded to include social development

issues such as poverty, inequality, social justice and the impact of other policies on citizens,

see Utting and Marques . Good governance has eight major characteristics. The policy should

be participatory, consensus-oriented, accountable, transparent, responsive, effective and

efficient, equitable, and inclusive and it follows the rule of law. Furthermore, it assures that

corruption is minimised, the views of minorities are taken into account and that the voices of

the most vulnerable in society are heard in decision-making. It is responsive for the present

and future needs of the society. Participation by both men and women is the key cornerstone

of good governance, Das Gupta . Good governance, according to Aaronson is fluid: officials

must respond to rapidly changing social, economic, ecological and political developments.

Good governance is not only about the supply side of laws, policies and regulations.

Governance includes the mechanism, processes and institutions, through which citizens and

groups articulate their interests, exercise legal rights…and mediate their differences. Thus, it

requires buy-in and involvement from citizenry. But to get that buy in policymakers and

market actors must ensure that citizens have access to information as well as the ability to

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influence and contest the public policy. To avoid stifling business by overregulation and to

supplement fair government regulation, ten drivers in the market for responsibility are

proposed, see Vives :

Enforcement of laws and regulations,

Active civil society,

Developed financial markets,

Educated consumers and buyers,

Activist media,

Monitoring and reporting institutions,

Activist employees,

Committed top management,

Exposure to globalisation and competition.

One can distinguish two main groups of companies' stakeholders – primary

stakeholders (shareholders, employees, suppliers, customers, competitors) and secondary

stakeholders (civil society and the state). The political-administrative system can influence

CSR, especially because market is far from perfect and not all managers have strong ethical

orientation. The role of public sector in CSR is continually changing. The role of government

in enhancing corporate social responsibility is essential. For market-driven CSR issues, such

as directors' salary, public sector agencies may elect to adopt a laissez-faire approach or

facilitate voluntary codes. CSR issues for which the market drivers are weak – where there is

no clear business case – may suggest a stronger role for the public sector to create incentives

(i.e. regulatory reform, negotiation of strategic alliances with business or civil society), see

Petkoski and Twose . CSR should be considered as a complement to increasingly effective

government regulation and not as the substitute for it. Everything should, if not start, than be

supported from the very top. As the definition of corporate social responsibility is still

emerging and always changing, so is the role of different stakeholders involved in business

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operations, as well as the government. The roles the public sector should play as in Petkoski

and Twose :

Setting up a special 'board' or agency with a remit of encouraging CSR and monitoring

the CSR activities of both the public and private sectors, and to ensure that CSR is not

'tokenistic',

Clarifying expectations of business with regard to CSR, and developing ways of

measuring their responses to these expectations,

Leading by example, e.g. through procurement and raising investors' awareness,

Eliminating bribery and corruption and encouraging transparency in relations between

government and business, particularly related to payments made in return for access to

natural resources such as oil and minerals. Promoting transparency at local

government level, and tackling the corporate lobbying of the government,

Providing tax benefits and other mechanisms so CSR is seen by companies as benefit

rather than cost (i.e. tax exemptions for companies that build social capital by working

with local communities as part of their core business),

Creating the vision and strategy for CSR, and allowing businesses to work with the

government toward that strategy,

Focusing particularly on the gaps in the current CSR agenda – particularly how to

work with small and medium-sized enterprises, and how CSR could work in countries

with poor information and lack of capital,

Applying the Local Agenda 21 process to involve local companies in implementing

CSR.

With regards to CSR, the stages of the public policy life cycle are important to note as they

are directly related to the implementation of responsible business practices. It is interesting to

observe those stages particularly as some of the responsible business practices could be

enforced by legislation.

Four stages of public policy life cycle could be identified, see Lyon and Maxwell :

Development stage – events occur and lead various segments of the public to become

aware that a problem exists. It is concerned with gathering and disseminating

information.

Politicisation – the issue acquires a label, opinion leaders begin discussing the

problem in public, the news media become more active in covering the issue, and

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interest groups begin to mobilize around the issue. There are two key parts of this

stage – political entry by organized groups and the influence game that ensues once

groups have entered.

The legislative stage – political leaders create the new laws responding to the issue.

Implementation – administrative agencies flesh out the details of the new legislation,

and regulators, police and the courts enforce it.

The laws governments pass to encourage CSR are uniquely powerful in at least three

aspects, for details see Williams and Aguilera :

1. The standards established by laws and mandatory regulation, while not immediately

activated in any realistic portrait of global organizational practice, have a particularly

strong influence on establishing the social expectations about responsible corporate

behaviour.

2. Once the social expectation is created, a number of other factors, including demands,

institutional investor demands, community demands, and NGO demands, interact to

create incentives for firms to meet the standards set out in the law.

3. The laws and policies that governments enact send a strong signal about the

importance of a subject that is amplified by the business culture in the country,

consumers' interests, institutional investors' actions, corporate governance regime,

NGOs' effectiveness, and by the individualistic versus collectivist nature of the

country's underlying political and social philosophy.

The regulatory regime, which operates in different countries, is changing and

becoming more restrictive due to the changes happening in the external environment.

Basically, in the future more regulations could be expected especially for the raising concern

for environmental impact companies' activities have on the environment. Here, the growing

trend of corporate reports with accounting connotations is expected, see Crowther and Aras .

However, there are opponents of the strong legal encouragement stating that law

simply cannot address every aspect and possible future scenario necessary for individual or

company behaviour. There is always an underlying assumption regarding a certain level of

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ethical and moral behaviour. Moreover, creating overly complex and difficult regulatory

structures inhibits companies from operating at optimal levels and impedes their ability to

identify the most effective measures for compliance. Command and control regulations

achieve some objectives, but their implementation is difficult, as they have to apply to all

cases, which may be different, and there cannot be tailor-made for every case. Thus,

regulations will tend to be inefficient, see Vives . Four different ideal types of public policies

relating to CSR can be distinguished: explicit, implicit, regulated and stimulated. The explicit

CSR covers corporate policies assuming responsibility in the interest of society. It consists of

voluntary, self-interest driven strategies, policies and programmes addressing issues perceived

as part of their social responsibility by the company and/or its stakeholders. The explicit CSR

is motivated by corporate self-interest. The implicit CSR means the entirety of the country's

formal and informal institutions assigning corporations an agreed share of responsibility for

society's interests. The regulated CSR aims to directly influence the strategic activities at the

level of corporation. It provides a more procedural and less direct form of governance as it

does not provide fixed threshold values of pollution or anti discrimination provisions, but sets

indirect incentives for the company to adopt practices such as environmental management

system – e.g. by means of regulatory transparency obligations.

Figure 1 Ideal types of CSR policies

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Source:

The following table categorizes possible government interventions regarding CSR.

Table 1 Government interventions regarding CSR

MANDATING

Command and

control

legislation

Regulators and

inspectorates

Legal and fiscal

penalties and

rewards

FACILITATING

Enabling

legislation

Creating

incentives

Capacity

building

Funding supportRaising

awareness

Stimulating

markets

PARTNERINGCombining

resources

Stakeholder

engagementDialogue

ENDORSING Political supportPublicity and

praise

Source: Ward and World Bank

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Government should encourage CSR and raise awareness about its importance. This means

creating incentives focusing on the long-term sustainability and creating a win-win situation

for corporations. Policy makers must clarify expectations of business regarding CSR, and to

develop ways of measuring firms’ responses to these expectations. When we come to the

topic of bribery and corruption the government force should be signed in here. Governments

should encourage transparency and tackle the corporate lobbying of government.

Furthermore, different tax benefits should be provided to companies recognized as socially

responsible, that is important and would be appreciated by companies. In order to fulfil all

that, government should have a clear vision and should have a developed strategy of

sustainable development as well as it should apply Local Agenda 21. There is a need for good

public-private relationship. Governments mandate CSR when adopting disclosure obligations

for investment funds or mandatory reporting for companies, when setting up compulsory

environmental management systems etc. . Government could encourage companies to

participate in public schemes that set social and environmental standards, monitor

compliance, promote social and environmental reporting and auditing, certify good practices

and encourage multistakeholder dialogue. Assistance from governments can be planned and

programmed as a component in the national environmental program. Usually, governments

would plan a three-part approach to the problem: (i) inform, sensitise and engage business in

dialogue and negotiations concerning voluntary initiatives, and institutionalise this process;

(ii) offer incentives for and assistance to firms seeking to adopt more environmentally

responsible business models; and (iii) re-enforce monitoring of environmental conditions and

enforce sanctions.

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3. PANEL DATA AND GMM ESTIMATION

3.1. Data

The methodological approach in this research was based on the collective measurement of the

CSR components - elements - using indexes as used by Waddock and Graves . Amongst the

available and world known CSR indexes (such as FTSE KLD 400 Social Index, Dow Jones

Sustainability Indexes, Ethibel Sustainability Index), the Dow Jones Sustainability World

Index was chosen. Dow Jones Sustainability World Index 2009/2010 represents the top 10%

of the leading sustainability companies out of the biggest 2500 companies in the Dow Jones

Global Total Stock Market Index. Dow Jones Sustainability World index 2009/2010, as on

30th of September 2009, consisted of 317 corporations, from 26 countries and different

industrial sectors. The complete analysis and econometric modelling was based on the data

retrieved from the corporations' annual reports and filtered by using Capital IQ and

Bloomberg. We use aggregated data on country level for all CSR listed companies in Dow

Jones Sustainability World Index. This balanced panel consists of annual observation for 25

countriesi over the period 2000-2008. Ultimately, the analysis was performed on 309

corporations. Sample is constrained by the data availability on the CSR companies and by the

availability of the financial indicators (particularly Altman Z score). Within the panel, 8

corporations' reports from the DJSWI could not be tracked /or were missing. Still, we deal

with a strongly balanced panel in our analysis.

3.2. Measuring actual CSR policy change

The first step in our analysis is to identify all significant legislated changes in actual

government CSR policy for the period 2000-2008. In order to do that, we consider the

important changes that reflect actual government CSR policy. To identify only policy change

that reflects the active government CSR policy, we limit ourselves to consistent and important

changes in CSR policies. In this way we give a more accurate demonstration of actual policy

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actions in CSR promotion. To capture the impact of policy actions promoting CSR we use a

dummy variable Policy (D). Variable (D) takes the value 1 when a significant policy action

promoting CSR is observed and 0 with no actual policy change. We use primary documents

published by policymakers over the observation period in all 25 countries that were available.

The impact of socially responsible companies in the long-term economic growth was

measured using a two-way fixed Driscoll-Kraay model of the form below, see

. (1)

3.3. Arellano – Bond dynamic panel GMM

To examine the link between CSR and economic growth we set up a generalized Barro

and Sala-i-Martin , Mankiw, Romer and Weil growth equation of the form

(2)

with Y/L = real GDP per unit of labour force, = level of technology, K = total gross

fixed capital formation in % of GDP as proxy for capital stock, L = labour, H = education

index (defined by United Nation) as proxy for human capital stock and CSR = explanatory

variables for CSR companies Depr = (n + g + ) as defined in Mankiw, Romer and Weil

with unobservable country specific effect ( business cycle) and time effect ( technology

progress). Dummy variable (D) policy captures country’s efforts to promote and encourage

CSR activity. Explanatory variables used to capture the impact of CSR companies on growth

list as follows in the table A1. Total gross fixed capital formation variable is assumed to be

endogenous. Because causality may run in both directions, from K to GDP and GDP to K, we

test for possible correlation between regressors and error term (we find it to exist). Since we

have a balanced panel with short time dimension and larger country dimension, lagged

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dependent variable and fixed effect model is preferred (according to the Hausman test

results), we use Arellano – Bond (two step) GMM estimator of the form1

(3)

with (xit) = vector of explanatory variables, (L) = vector of polynomials in the lag

operator. Bond, Hoeffler, Temple show that it is practical to use system GMM estimator in

the framework of empirical growth models. Among other things, the unobserved country

specific effect (i) reflects differences in current and past business cycles regimes. The time

specific intercept (i) captures technology progress that is common to all countries.2

4. EMPIRICAL RESULTS

We estimate 17 different model specifications with Two-way Fixed Driscoll-Kraay

model (see table 2) and Arellano – Bond GMM model with policy dummy variable (see table

3). Empirical results of the study show CSR companies positively affect the long-run growth.

Technology and human capital stock presently retain the role of primary growth sources. The

results show that the performance of socially responsible businesses is of interest for policy

makers trying to achieve higher growth rates. CSR companies’ share in the growth rate is 6%.

This link should not be considered weak since it reflects the current state of CSR companies’

presence in the economy. For example, two-way fixed Driscoll-Kraay estimates show that

10% increase in the CSR companies’ overall performances measured by Altman Z score

1 Before deciding to use Arellano – Bond GMM estimator we perform standard specification tests (poolability test, Hausman test (random/fixed effects), cross-sectional dependence, autocorellation, Panel Unit Root, Panel Cointegration) and selected it as the most efficient for the analysis.

2 The inclusion of time dummies is equivalent to transforming the variables into deviations from time means (i.e. the mean across the N individual countries for each period). Thus any arbitrary pattern in the time means is consistent with a constant mean of the transformed series for each country (see Bond, Hoeffler and Temple, 2001).

i Countries in the panel: United Kingdom, Italy, Germany, Japan, Australia, France, Spain, Canada, Finland, Netherland, Norway, Sweden, South Africa, Switzerland, China, Ireland, Denmark, Portugal, South Korea, Hong Kong, Thailand, Brazil, Belgium, India, USA.

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affects the long-run growth by 0.6%. According to the average annual percentage change in

the Altman Z score during the observed period, we notice that annual change in Altman Z

score varied in between 5 and 157%. Thus, change in Altman Z score of 20% would

considerably (by 1.2 percentage points) increase the growth rate. Research results indicate

that the positive impact of socially responsible companies in the long-run growth will be

larger as their share in the economy increases. Our results are in line with . They find that

non-CSR oriented economic policy results in reducing the level of income and the long-run

growth. show that welfare gains both to business and government can be achieved by means

of green tax reform. Sustainable oriented policies lead to higher consumption of goods and

services directed to the same CSR companies as reward for their adherence to sustainability

laws and regulations. analyses how green house gas affects the ecological system and

explains the expected negative consequences for the world economies. In the case study on

Turkey suggest that in order to avoid possible negative effects (costs) of new sustainability

policies, existing tax burden should be lowered. Effects of the policy dummy variable in the

model is statistically significant, positive but weakly exogenous. This is however expected

since actual state policy in promoting CSR companies’ performance is lacking. Policy makers

should realize that promoting CSR companies evolution is beneficiary for the long-run

growth. In fact, we can say that the fastest and sustainable long-run growth rates in future will

be achieved in countries with strong promoting CSR environment. Policy makers trying to

build strong and promoting CSR initiatives will generate multiple returns on growth. CSR

companies positively and strongly affect the long-run growth through increased

competitiveness, better risk management, more flexible labor markets, rising human capital

stock, product diversification, cost savings, access to new markets, better customer

expectation insight. Two ways in which socially responsible companies boost economic

growth need to be particularly pointed out. Countries with a favorable CSR environment and

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a large share of CSR companies will more efficiently face contemporary biggest long-run

growth constraints; jobless growth and working poor. Our results show that CSR companies

in countries facing jobless growth and working poor constraints as India could help policy

makers in India solving their growth problems. Long-run growth is necessary but not

sufficient condition to solve these frictions. India is facing massive economic growth even in

the time of crisis. This massive growth however is not followed by expected increase in

employment levels and poverty reductions. Long-run growth cannot become sustainable

simply by achieving high growth rates; we need CSR companies to accomplish that. Our

study results show that currently policy makers are not doing enough to strongly promote

CSR infrastructure and businesses. Government policy actions in promoting CSR now have a

very limited (weak) impact on the long-run growth. Countries promoting CSR environment

on the average achieve higher growth rates (0.001 to 0.02 percentage points difference) in

relation to non-CSR promoting countries. The cause for registered low returns to

governments’ CSR policy action rests on the structure of designed policy actions. The policy

actions are more regulatory oriented (local and global regulations) and less market oriented.

The policy makers should start designing more CSR business oriented compliances that will

attract CSR companies’ entry to the market. This can be accomplished by supporting the

creation of new revenue streams to future CSR companies. Coordinated action aimed to

shareholders’ wisdom underlining why they should behave socially responsible is needed.

Such action should incorporate tax benefits and address public perception towards CSR

companies and not away from them. Companies must move from profit oriented to strategic

philanthropy resulting in access to new markets, new demand, consumer premiums, product

and service innovation, generating increasing revenue. Policy makers must find a way to

support the transition from profit to CSR oriented business. This means they must move from

crude regulatory and discretionary policy to more flexible CSR promoting policies.

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Table 2 Two-way Fixed Driscoll-Kraay Estimates (dependent variable lnY/L)Variables (1) (2) (3) (4) (5) (6) (7) (8) (9)

lnK 0.13577 0.19734* 0.21953* 0.19047* 0.19031** 0.48069* 0.12078 0.16471 0.16611lnH 0.94721** 1.00910** 0.99287** 0.99575** 0.72576** 1.61565* 0.91690** 0.88567** 0.92452**lnDepr -0.01551** -0.01664** -0.01780** -0.01598** -0.01342** -0.01874* -0.01378 -0.01410** -0.01711**lnCSR

lnPR 0.05558**lnNOI 0.00279lnTA -0.1022**lnTE -0.00009lnTB -0.10982**

lnWK 0.02733**lnNCIC -0.00553*

lnP/E -0.05893**lnTES 0.01772*

Constant 8.53786** 9.62511** 12.34809** 9.7501** 12.46931** 8.13414** 10.0003** 9.96385** 9.67749**R2 0.57 0.55 0.59 0.54 0.71 0.71 0.59 0.60 0.49

Variables (10) (11) (12) (13) (14) (15) (16) (17)lnK 0.19599 0.20313* 0.18123 0.21923* 0.18010 0.27894** 0.25775** 0.17009*lnH 0.99297** 0.99992** 1.03731** 1.03093** 1.05047** 0.84752** 0.97059** 0.96769**lnDepr -0.01673** -0.01635** -0.01662** -0.01705** -0.01711** -0.01548** -0.01650** -0.01431**lnCSR

lnROA -0.00066lnROE -0.00486lnTAT 0.01781

lnIT -0.01700**lnART 0.00982*

lnCR 0.04767**lnQR 0.04255**

lnALT 0.06145**Constant 9.73182** 9.72630** 9.78063 9.70278** 9.76386** 9.43749** 9.53206** 9.72528**R2 0.55 0.54 0.55 0.55 0.54 0.60 0.60 0.58Notes: ** significant at the 1 percent level, * significant at 5 percent level

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Table 3 Arellano-Bond Dynamic Estimates (no time effect dummies, dependent variable lnY/L)Variables (1) (2) (3) (4) (5) (6) (7) (8) (9)

lnY/L(t-1) 0.8056** 0.8126** 0.8692** 0.8131** 0.8777** 0.8267** 0.7529** 0.9096** 0.8968**lnK 0.0481** 0.0408** 0.0724** 0.0509** 0.0561** 0.1205** 0.0899** 0.0700** 0.0437**lnH 0.1412** 0.1453** 0.2043** 0.1619** 0.1678** 0.0855 0.0663 0.1439** 0.1888**lnDepr -0.0086** -0.0072** -0.0073** -0.0071** -0.0080** -0.0017 -0.1034** -0.0076** -0.0075**lnCSR

lnPR 0.0264**lnNOI 0.0193**lnTA 0.0000**lnTE 0.0231**lnTB 0.0080**

lnWK 0.0073**lnNCIC -0.0015**

lnP/E 0.0049**lnTES -0.0007

D -0.0006 -0.0003 0.0016 -0.0016 0.0018 0.0178 -0.0292** 0.0013 -0.0022Constant 1.2354** 1.3749** 1.1396** 1.5491** 0.9156** 1.2059* 2.3199** 0.7239** 0.9743**Wald test 25612(0.0000) 17214(0.0000) 9734(0.0000) 19682(0.0000) 89767(0.0000) 18683(0.0000) 2131(0.0000) 16092(0.0000) 33622(0.0000)Arellano-Bond 0.5933(0.553) -0.4390(0.660) -0.9762(0.329) -0.7665(0.443) -0.9857(0.324) -0.5336(0.593) -0.5585(0.576) -1.165(0.243) -1.017(0.308)

Sargan 21.904(0.7422) 22.570(0.7079) 23.504(0.6576) 20.802(0.7955) 22.412(0.7161) 7.406(0.9999) 15.721(0.9581) 23.398(0.6634) 21.701(0.7524

)Variables (10) (11) (12) (13) (14) (15) (16) (17)

lnY/L(t-1) 0.8765** 0.8844** 0.8979** 0.8872** 0.8945** 0.8858** 0.8821** 0.8701**lnK 0.0624** 0.0520** 0.0706** 0.0628** 0.0701** 0.0715** 0.0655** 0.0064**lnH 0.1942** 0.1638** 0.1603** 0.1609** 0.1961** 0.1619** 0.1695** 0.2024**lnDepr -0.0084** -0.0083** -0.0073** -0.0074** -0.0075** -0.0075** -0.0074** -0.0075**lnCSR

lnROA 0.0119**lnROE 0.0108**lnTAT -0.0115**

lnIT -0.0007lnART -0.0138**

lnCR 0.0016lnQR 0.0015

lnALT 0.0294**D 0.0003 0.0034** 0.0022 0.0023 0.0025 0.0028 0.0021 0.0043**Constant 1.0927** 1.0363** 0.8555** 0.9992** 0.9276** 0.9837** 1.0412** 1.1423**Wald test 12701(0.0000) 13385(0.0000) 10056(0.0000) 14677(0.0000) 10424(0.0000) 14125(0.0000) 14788(0.0000) 11178(0.0000)Arellano-Bond 0.1916(0.8445) 0.1696(0.8650) -8.8676(0.3856) -0.8609(0.3893) -0.8885(0.3743) -0.9365(0.3490) -0.852(0.3938) 0.367(0.7129)

Sargan 22.977(0.6862) 21.118(0.7807) 21.520(0.7613) 21.675(0.7537) 21.114(0.7809) 21.707(0.7521) 21.484(0.7631) 23.266(0.6706)

Notes: ** significant at the 1 percent level, * significant at 5 percent level.

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identify factors of CSR change in brand perception and consumer behavior in

Slovenia. They find brand perception and consumer behaviour in Slovenia is

positively correlated with CSR activities. Consumers prefer service and products from

socially responsible companies ensuring a new growth platform for future growth.

Government is the main integrative factor in the partnership between private

and social sectors. The policy makers are only in a position to coordinate a complex

set of relationship between private and social sectors. find government to be a key

driver among stakeholders to promote CSR activities through public policies. Our

research is in line with their findings exhibiting evidence that countries with

government as active driver behind CSR increase the long-run growth and ensure the

sustainable development. Current government CSR policy (vision, objectives and

priorities) in panel countries are not in synchrony with the long-run growth goal. The

gap becomes even wider when it comes to the scope of domestic CSR policy in the

international context. Country differences in the impact of CSR policies on the long-

rung growth confirm that respective CSR policy implementation and framework

between countries significantly differ. Governments working more strongly in the

partnership with companies and social sector (as in Germany, Norway, Sweden)

manage to achieve higher returns through the long-run growth. The policy makers in

these countries succeeded to establish a win-win situation for the state, the companies

and the social sector resulting in the stronger long-run growth. Our study results

provide solid evidence that the policy makers will benefit considerably in term of the

long-run growth if active CSR policy is in place. Active CSR policy demands to be

integrated in the sustainable development policy framework, subsiding socially

responsible investing schemes, internationally focused, supporting CSR firms public

image and branding and serve as the key factor in building CSR growth platform.

20

Only when these requirements are met, the full impact of CSR companies on the long-

run growth will become evident. Lack in the policy coordination, multi-stakeholder

forums, CSR transparency and promotion, failure to divert public opinion toward

CSR engaging firms, detached sustainable development policy will reduce the future

growth.

5. CONCLUSION

The analysis of this paper shows that CSR firms are important for the

economic growth. CSR companies have a positive (not yet determinant) effect on the

country’s economic growth. The results follow the findings of Espigarez and

González identifying a positive link between CSR indicators and the economic

growth. Our empirical results confirm their findings using a large panel of countries

with significant time dimension. Furthermore, we use 17 different model

specifications in assessing the importance of CSR firms as growth determinants. The

empirical results of our study draw some very significant policy implication asserting

that countries strongly promoting CSR activities will achieve higher future growth

rates. We assert that development policies focused lone on economic growth

paradigm belong to the past. Sustainable and balanced economic growth demands

coordinated, pro-active policy by states, companies and communities. This important

conclusion should intrigue policy makers on rethinking the role of the government in

CSR promotion as the mean to boost economic growth and design the new growth

platform (model).

Our findings are subject to number of limitations. Limited panel data was used

in the analysis so the results cannot be simply generalized to other countries outside

the panel. The link between CSR firms and growth possibly differs among countries

21

depending on market conditions and political stability. We use a widely accepted

growth equation but more variables having effect on growth could give different

results if included in the model.

How CSR firms affect economic growth demand to be studied more deeply.

Particularly, the link between the costs of CSR activities and firm’s return should be

addressed. Another important aspect is what governments are expected to do and how

can they defray a part of the CSR costs. In the end, it is important to find the answer

to the question if the firms should be concerned with economic growth and

sustainability issue and who is expected to guarantee for higher returns – markets or

governments?

APPENDIX

Table A1 Variables Names and Definitions

Variable name Definition

Y Real GDP per capita

KTotal gross fixed capital formation in % of GDP

L Labour force (in 000)H Education index

CSRExplanatory variables for CSR companies

PR Gross profitNOI Net operating incomeTA Total assetsTE Total equityTB Total debtWC Working capital

NCIC Net change in cashP/E P/E ratioTE Total employees number

ROA Return on assetsROE Return on equityTAT Total asset turnoverIT Inventory turnover

ART Accounts receivable turnoverCR Current ratioQR Quick ratio

ALT Altman Z scorePolicy Dummy variable

22

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