Finance, Competitiveness, and Innovation in Focus

2021-02-18, Heilbron, Armando, Whyte, Robert

A well-functioning institutional framework can result in higher levels of foreign direct investment. It requires several factors such as a shared strategic vision, solid institutions capable of delivering on their specific mandates and collaborating beyond their walls, and a strong political and financial support for all. The note describes key government functions for investment, suggests a process and principles for creating optimal institutional structures to deliver them, and provides examples. In particular, it examines the role of investment promotion agencies (IPAs) the agency usually tasked with operationalizing government FDI goals as well as the dilemmas that governments face in the context of institutional specialization versus function consolidation.

2020-10-22, Molfetas, Aris, Grava, Lars

Governments increasingly use risk-based regulation (RBR) to adapt their degree of regulatory control to the actual risks posed by industry sectors, economic activities, and business establishments. Risk-based regulation aims to protect public goods, such as safety, health, and the environment, while at the same time avoiding unnecessary burdens on businesses. When designing regulation and developing models for monitoring and enforcement, risk guides assessments of costs and benefits. This note presents reformers and practitioners with the highlights of an approach to implementing a risk-based regulation system.

2020-08-12, Kher, Priyanka, Chun, Dongwook

Political risks covers a wide range of issues, and this note focuses on a subset of political risk: the risks that arise from government actions, whether political or regulatory, that can affect the profitability of an investment in a foreign country. Policies adopted and implemented by governments can directly mitigate these risks. Bad governance and economic crises are two big drivers of political risk. Both are currently prevalent globally, but especially in developing countries. The purpose of this note is to summarize how political risk caused by government actions can impact foreign investment, and what tools countries can use to manage and mitigate such risks.

2020-05-01, Sabha, Yassin, Liu, Yan, Douw, Wim

This note seeks to provide an overview of investment incentive policy as a tool for Governments seeking to promote technology transfer and productivity spillovers by multinational enterprises (MNEs) in the host economy to local firms and suppliers. It summarizes international experiences to demonstrate what has worked and what has not worked, as well as the advantages and disadvantages of different investment incentive schemes. Evidence suggests that backward linkages between MNEs and local suppliers are the most important channels for technology and productivity spillovers to local firms (Jordaan et al, 2020). Furthermore, backward linkages offer an important avenue for ambitious local firms to integrate into Global Value Chains (GVCs). However, several market failures and challenges often prevent backward linkages from materializing. Policy makers can use investment incentives and other policy tools to help address these challenges. This note highlights examples of investment incentive schemes used by Governments, as well as their pros and cons.

2021, Aramburu, Julian, Goicoechea, Ana

The increase in female labor force participation is among the most salient economic and social transformations in the world over the last fifty years, and Latin America is no exception. In this regard, the gender gap in educational attainment has not only narrowed, but it has reversed itself in most countries of the region. Despite this, two important gaps remain. First, wages of female workers are, on average, thirty percent lower than those of males. Second, a high degree of occupational and educational segregation remains, with men and women being concentrated in different fields of occupations and study. This study pilots a comprehensive female-targeted computer programming training (bootcamp) in Buenos Aires, Argentina and Bogotá, Colombia. Bootcamps have become a policy instrument to tackle the following two objectives. First, they provide training on coding skills at a time when the rapid spread of new digital technologies is increasing demand for such skills. Second, when training on coding skills is specifically targeted toward women, it reduces the gender gap in terms of access to effective training on coding skills.

2020-10-08, Dauda, Seidu, Drozd, Maciej

Reforms to foster competition in product markets have been shown to improve productivity and support economic growth in advanced economies (AEs). However, relatively little is known about restrictions to competition in emerging market and developing economies (EMDEs). We fill this gap by comparing product market regulations across 33 AEs and 37 EMDEs using standardized indicators developed by the Organization for Economic Co-operation and Development and collected jointly with the World Bank Group. Product market regulations are found to be more restrictive and more variable in EMDEs than in AEs. Most variation among countries can be attributed to differences in sector policies. This analysis allows policy makers to identify areas for reform and prompts policy researchers to investigate the links between product market regulation and economic development in EMDEs.

2020-07-24, Apedo-Amah, Marie Christine, Coville, Aidan, Piza, Caio, Raja, Siddhartha, Scarpari, Raquel

E-commerce has the potential to expand market opportunities for businesses. However, it is not guaranteed. The World Development Report on Digital Dividends (World Bank 2016) highlights the importance of complementary analog support that may be needed to ensure people and businesses are able to fully benefit from the opportunities that high-speed, ubiquitous internet can provide. The first step in providing such support is understanding the constraints to adoption. The Competitive Policy Evaluation Lab (ComPEL) is supporting an impact evaluation in Georgia to generate knowledge about the constraints that prevent firms from participating in e-commerce platforms, while also testing an innovative approach to address the identified issues. The study evaluates the ‘Broadband for Development’ (BfD) project, a component of the World Bank-supported Georgia National Innovation Ecosystem (GeNIE) program, that aims to foster innovation, particularly for otherwise marginalized firms. The BfD provides support to Micro, Small and Medium Enterprises (MSMEs) located outside of the capital, Tblisi, to adopt broadband connections and establish an online retail presence through e-commerce training. Before BfD launched this effort, the research team collected and analyzed baseline data regarding 2,180 eligible firms. The purpose of this note is to explore the baseline results and some implications for BfD, or similar projects supported by the World Bank’s Finance, Competitiveness and Innovation (FCI) Global Practice, within the context of the impact evaluation.

2020-11-18, Marusic, Andreja, Nielsen, William, Ghossein, Tania, Solf, Sylvia

Interventions to incentivize business formalization over the past decades have shown mixed results (Bruhn and McKenzie, 2013; Bruhn and McKenzie, 2018; Floridi et al., 2019) and brought limited knowledge on how to address informality in a systematic way. Adding to the challenge is determining whether informality should be a direct target, or is rather something indirectly impacted through development, improved governance, better regulation and improved public services (Loayza 2016; Loayza, 2007; Perry et al., 2007; World Bank, 2009). The informal sector includes businesses, workers, and activities operating outside the legal and regulatory systems (Loayza 2016). The scale of the informal sector in emerging and developing economies, which accounts for 25 to 40 percent of GDP and often more than 60 percent of employment (World Bank 2020), merits rethinking approaches to formalization. To support greater rates of formalization, this note proposes four specific areas for further research and pilot interventions: 1) supporting informal clusters, 2) providing support to informal businesses without a target of formalization, 3) simplified, intermediate and temporary legal statuses of informal businesses to better align with business needs and government goals, and 4) understanding behavioral insights that influence businesses’ decisions to inform policymaking.

2020-09-01, Sabha, Yassin, Hamden, Mouna, Heilbron, Armando

After the Arab Spring, Tunisia urgently needed to create productive jobs and economic opportunities for its young population. Attracting foreign direct investment (FDI) in priority sectors was a key pillar of the Government’s strategy to deliver this job agenda. With the support of the World Bank Group, the Investment Promotion Agency of Tunisia engaged in proactive outreach campaigns which resulted in 21 investment leads and three announced FDI projects, including a manufacturing plant by Japan’s Sumitomo. This case study shows that well-planned and executed investor outreach campaigns can lead to concrete investment results and contribute to a country’s development objectives. It provides key success factors useful to other countries wanting to engage in outreach. More than ever before (in a post-COVID-19 world), outreach can play a key role for countries in their efforts to reposition and take advantage of new investment opportunities from near shoring and emerging sectors. The paper provides examples of IPAs continuing their outreach efforts virtually by leveraging technology.

2020-07-21, Barron, Manuel, Bedoya, Guadalupe, Garcia Montufar, Diego, Goicoechea, Ana

Business safety inspections are commonly cited as one of the most important bureaucratic barriers to doing business around the developing world (World Bank 2019, 2020). In Peru, the business safety inspection system is characterized by low compliance with established norms, misaligned incentives and high transaction costs. These inefficiencies affect micro, small, and medium enterprises (MSMEs) disproportionally, as they do not have the resources or know-how to navigate the inspection procedures. MSMEs constitute 99.5 percent of firms, employ up to 89 percent of the population, and contribute up to 31 percent of gross domestic product (GDP) in the country (Ministry of Production 2017). Thus, the inefficiencies in the inspection system hamper the business environment, adversely affecting shared prosperity and economic growth. The World Bank Group is conducting a rigorous impact evaluation study in collaboration with the Ministry of Housing of Peru.1 Specifically, it will assess how the deployment of an electronic system for inspections, in combination with the improved monitoring of inspector performance and optimized firm auditing, can be used to address key constraints in the inspection system. This work will shed light on whether these mechanisms can reduce the compliance burden on firms by improving regulatory efficiency while also ensuring safety. In addition, it will provide evidence about how such systems could operate when implemented at scale. This note provides an overview of the policy problem that Peru faces, and describes the solutions to be tested. It then focuses on lessons from developing and implementing the electronic system to solve the policy problem, with an emphasis on those lessons related to the constraints and inputs to improving regulatory efficiency and accountability.