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Iacovone, Leonardo
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Global Practice on Trade and Competitiveness, The World Bank
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January 31, 2023
Publication Search Results
1 - 10 of 12
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Publication
Stunted Growth : Why Don't African Firms Create More Jobs?
(World Bank, Washington, DC, 2013-12)Many countries in Africa suffer high rates of underemployment or low rates of productive employment; many also anticipate large numbers of people to enter the workforce in the near future. This paper asks the question: Are African firms creating fewer jobs than those located elsewhere? And, if so, why? One reason may be that weak business environments slow the growth of firms and distort the allocation of resources away from better-performing firms, hence reducing their potential for job creation. The paper uses data from 41,000 firms across 119 countries to examine the drivers of firm growth, with a special focus on African firms. African firms, at any age, tend to be 20-24 percent smaller than firms in other regions of the world. The poor business environment, driven by limited access to finance, and the lack of availability of electricity, land, and unskilled labor have some value in explaining this difference. Foreign ownership, the export status of the firm, and the size of the market are also significant determinants of firm size. However, even after controlling for the business environment and for characteristics of firms and markets, about 60 percent of the size gap between African and non-African firms remains unexplained. -
Publication
Regional Productivity Convergence in Peru
(World Bank, Washington, DC, 2015-11)This paper examines whether labor productivity converged across Peru’s regions (“departments”) during 2002-12. Given the large differences in labor productivity across the regions of Peru, such convergence has the potential to raise aggregate productivity and incomes, and also reduce regional inequalities. The paper finds that labor productivity in the secondary sector (especially manufacturing) and the mining sector has converged across Peruvian departments. The paper does not find robust evidence for labor productivity convergence in agriculture and services. These patterns are consistent with recent cross-country evidence and with the hypothesis that productivity convergence is more likely in sectors with greater scope for market integration, because of the effects of competition and knowledge flows. The convergence in labor productivity within manufacturing and mining has been sufficient to lead to convergence in aggregate labor productivity across departments. But because services and agriculture continue to employ the majority of workers in Peru, aggregate convergence is slower than that within manufacturing. The paper also finds that poverty rates are not converging across departments. The limited impact of labor productivity convergence on poverty could be tied to the facts that not all sectors are experiencing productivity convergence, poorer people are employed in sectors where convergence has been slower (such as agriculture), and there is very little labor reallocation toward converging sectors (such as manufacturing). -
Publication
Trade Integration, FDI, and Productivity
(World Bank, Jakarta, 2015-04)Policy attitude towards trade integration and foreign direct investment (FDI) is often a controversial yet popular subject. This note presents evidences from recent policy researches that arguing that engaging in an open trade and investment regime have brought productivity gains which is key factor for sustaining increase in income per-capita. Evidence from Indonesia also suggests that foreign owned plants have become increasingly important, generating a significant share of exports and overall output, as well as more productive and more export intensive than domestic plants, and to spend more on RD and training. FDI also have positive impact on firms in the same sector, through competition and demonstration effects, and in upstream sectors, as suppliers to foreign-owned plants improve the quality of their own products to meet their clients more exacting needs. Evidence also suggests a positive impact from import competition in improving allocative efficiency across manufacturing plants which is a key element in driving productivity in manufacturing sector. -
Publication
Policies to Support Businesses through the COVID-19 Shock: A Firm-Level Perspective
(World Bank, Washington, DC, 2021-01)Relying on a novel dataset covering more than 120,000 firms in 60 countries, this paper con-tributes to the debate about D policies to support businesses through the COVID-19 pandemic. While governments around the world have implemented a wide range of policy support measures, evidence on the reach of these policies, the alignment of measures with firm needs, and their targeting and effectiveness remains scarce. This paper provides the most comprehensive assessment to date of these issues, focusing primarily on the developing economies. It shows that policy reach has been limited, especially for the more vulnerable firms and countries, and identifies mismatches between policies provided and policies most sought. It also provides some indicative evidence regarding mistargeting of policies and their effectiveness in addressing liquidity constraints and preventing layoffs. This assessment provides some early guidance to policymakers on tailoring their COVID-19 business support packages and points to new directions in data and research efforts needed to guide policy responses to the current pandemic and future crises. -
Publication
Unmasking the Impact of COVID-19 on Businesses: Firm Level Evidence from Across the World
(World Bank, Washington, DC, 2020-10)This paper provides a comprehensive assessment of the short-term impact of the COVID-19 pandemic on businesses worldwide with a focus on developing countries. The results are based on a novel data set collected by the World Bank Group and several partner institutions in 51 countries covering more than 100,000 businesses. The paper provides several stylized facts. First, the COVID-19 shock has been severe and widespread across firms, with persistent negative impact on sales. Second, the employment adjustment has operated mostly along the intensive margin (that is leave of absence and reduction in hours), with a small share of firms laying off workers. Third, smaller firms are disproportionately facing greater financial constraints. Fourth, firms are increasingly relying on digital solutions as a response to the shock. Fifth, there is great uncertainty about the future, especially among firms that have experienced a larger drop in sales, which is associated with job losses. These findings provide a better understanding of the magnitude and distribution of the shock, the main channels affecting businesses, and how firms are adjusting. The paper concludes by discussing some avenues for future research. -
Publication
Productivity Performance in Indonesia's Manufacturing Sector
(World Bank, Jakarta, 2012-09)Relying on firm-level data from Statistik Industri this note analyzes the evolution of productivity dynamics of Indonesian firms over the past 20 years (1990-2009). Economy-wide and sectoral productivity changes are decomposed into their two main components: changes due to the evolution of average productivity and changes due to 'allocative efficiency'. This decomposition shows that while during the 20 years both components have increased, the changes in allocative efficiency have been mainly driven by average productivity growth and less by increases in allocative efficiency, even if the latter has also improved during the period under analysis. Interestingly, the note shows that both average Total Factor Productivity (TFP) growth and allocative efficiency improvements are especially driven by a few sectors: electronics, machinery and instruments, and textiles, clothing and footwear. Limited improvements in both allocative efficiency and average TFP have occurred instead in natural-resource-based sectors, sectors characterized by more limited competition and higher rents. This note emphasizes the importance of 'allocative efficiency' for productivity evolution because, in a context where firms are very different in their productivity, it becomes crucial how resources are allocated in the economy. This series of policy notes suggests that regulatory reforms, exposure to foreign competition and access to imported intermediate inputs are important determinants of allocative efficiency. The problem of a 'missing middle' is closely related to that of sub-optimal allocation of resources across firms: a strong feature of Indonesian firm-size distribution. Going further, the note suggests that burdensome regulations and imperfect financial markets are two important causes of this missing middle. To complement the focus on productivity, the note also analyzes firm-level job dynamics and points to the crucial role of 'start-ups' and new companies as a key driver of job creation. This finding suggests that the focus of policymakers on Small and Medium Enterprises (SMEs) may be misplaced and that this focus should start realigning towards supporting more dynamic 'start-ups' rather than SMEs. -
Publication
Firm Recovery during COVID-19: Six Stylized Facts
(World Bank, Washington, DC, 2021-10)Building on prior work that documented the impact of COVID-19 on firms in developing countries using the first wave of Business Pulse Surveys, this paper presents a new set of stylized facts on firm recovery, covering 65,000 observations in 38 countries. This paper suggests that: One, since the outset of the pandemic, some aspects of business performance such as sales show signs of partial recovery. Two, other aspects remain challenging, including persistently high uncertainty and financial fragility. Three, recovery is heterogeneous across firms and more sensitive to firm-level attributes such as size, sector, and initial productivity than to country-level differences in the severity of the initial shock. In particular, larger and more productive firms are recovering faster, with implications for competition policy and allocative efficiency. Four, the decline in jobs has been steeper during the initial shock than the expansion in employment during recovery, raising the risk of a "jobless" recovery pattern. Five, the diffusion of digital technology and product innovation accelerated during the pandemic but did so unevenly, further widening gaps between small and large firms. Six, businesses now have more access to policy support, but poorer countries continue to lag behind and appropriate targeting of firms remains a challenge. -
Publication
Economic Performance under NAFTA : A Firm-Level Analysis of the Trade-Productivity Linkages
( 2011-05-01)Did the North American Free Trade Agreement make Mexican firms more productive? If so, through which channels? This paper addresses these questions by deploying an innovative microeconometric approach that disentangles the various channels through which integration with the global markets (via international trade) can affect firm-level productivity. The results show that the North American Free Trade Agreement stimulated the productivity of Mexican plants via: (1) an increase in import competition and (2) a positive effect on access to imported intermediate inputs. However, the impact of trade reforms was not identical for all integrated firms, with fully integrated firms (i.e. firms simultaneously exporting and importing) benefiting more than other integrated firms. Contrary to previous results, once self-selection problems are solved, the analysis finds a rather weak relationship between exports and productivity growth. -
Publication
The Better You Are the Stronger It Makes You : Evidence on the Asymmetric Impact of Liberalization
( 2009-05-01)This paper studies how liberalization affects productivity growth using micro-level plant data. While previous studies have already shown the existence of a positive relationship between competition and economic performance, the novelty of this paper is that it analyzes not only the average impact of liberalization, but also goes "beyond the average" and shows how the liberalization can affect dissimilar plants in a different way. The author first develops a model which predicts that, while the impact of liberalization on productivity growth is positive "on average", more advanced firms tend to benefit more. In fact, liberalization generates two competing effects: on one side it spurs more innovative efforts because of the increased entry threat by foreign competitors, on the other side, enhanced competition curtails expected profits and reduces the funds available to finance innovative activities. The pro-competitive effect is weaker for less advanced firms as for them it is harder to catch-up with the "technology frontier". These predictions are then tested focusing on Mexican plants during the NAFTA liberalization. The results show that a 1 percent reduction in tariffs spurred productivity growth between 4 and 8 percent on average. However, for backward firms this effect is much weaker if not close to zero, otherwise for more advanced ones this effect is stronger with productivity growing between 11 and 13 percent. Consistent with the theoretical model the results are stronger in those sectors where the scope for innovative activities is more pronounced. These results are particularly important for policy makers because they suggest that while increasing competition may be good in spurring average productivity, it is also true that this effect does not hold for all type of firms, in particular more backward firms may need some complementary support policy to upgrade their capacities and keep up with the more competitive environment. -
Publication
Teaching Personal Initiative Beats Traditional Training in Boosting Small Business in West Africa
(American Association for the Advancement of Science, 2017-09-22)Standard business training programs aim to boost the incomes of the millions of self-employed business owners in developing countries by teaching basic financial and marketing practices, yet the impacts of such programs are mixed. We tested whether a psychology-based personal initiative training approach, which teaches a proactive mindset and focuses on entrepreneurial behaviors, could have more success. A randomized controlled trial in Togo assigned microenterprise owners to a control group (n = 500), a leading business training program (n = 500), or a personal initiative training program (n = 500). Four follow-up surveys tracked outcomes for firms over 2 years and showed that personal initiative training increased firm profits by 30%, compared with a statistically insignificant 11% for traditional training. The training is cost-effective, paying for itself within 1 year. This is the author's version of the work. It is posted here by permission of the AAAS for personal use, not for redistribution. The definitive version was published in Science Vol 357, issue 6357: 1287-90.