Publication: Investment Climate Reforms and Job Creation in Developing Countries : What Do We Know and What Should We Do?
This paper reviews the literature on the role of the investment climate reforms in job creation. It finds that the current landscape of employment and private sector activity in developing countries indicates a number of potential channels through which investment climate reforms can positively affect job creation. However, rigorous empirical evidence is scarce and most of the relevant studies focus on business entry reforms with a few focusing on business taxation and investment promotion activities. Overall, there is evidence of job creation through business entry, tax reforms, and investment promotion activity in developing countries. Almost all of these evidences are from quasi-experimental studies that are significant improvements over conventional cross-country or cross-section panel data analysis. Still, various endogeneity concerns in these studies cannot be ruled out completely. In assessing job effects, future research should provide deeper insights on the gross versus net and short-run versus long-run job effects and general equilibrium effects of various investment climate reforms related to jobs, productivity, competition, and other developmental outcomes. Another critical agenda for future research is to shed light on which investment climate reforms matter most for spurring the employment and productivity growth of firms in developing countries. The World Bank Group, in partnership with development partners and client government countries, can play a significant role in bridging the current knowledge gap by integrating rigorous evaluation as an integral part of project design and implementation, and improving data quality, particularly through its information and communication technologies-led private sector development reform initiatives.
“Rahman, Aminur. 2014. Investment Climate Reforms and Job Creation in Developing Countries : What Do We Know and What Should We Do?. Policy Research Working Paper;No. 7025. © World Bank Group, Washington, DC. http://hdl.handle.net/10986/20335 License: CC BY 3.0 IGO.”
Other publications in this report series
PublicationDemand Growth versus Market Share Gains : Decomposing World Manufacturing Import Growth(World Bank, Washington, DC, 2013-02)This paper decomposes manufacturing import growth rates in a selected set of large industrial and developing countries (five industrial and eight developing) and measures the relative contributions of domestic demand and market share changes for two separate periods 1991/92 - 2001/02 and 2001/02 - 2007/08. It also shows the shares of imports both from the rest of the world and from developing countries for aggregate and three-digit manufacturing sectors. Import growth is much higher during the 2000s driven by higher demand growth rates. While market share changes explain most of the growth during the 1990s, its contribution is relatively smaller during the 2000s. Imports from developing countries have grown much faster both in industrial and developing country markets driven primarily by market share changes. However, more than half of market share gains by developing countries are caused by the exports of China, which accounts for more than 70 percent of market share gains of developing countries in the sample countries during the 2000s. Despite rapid growth, developing countries' share in the gross absorption of the sample countries is still low and can expand substantially even if demand growth is much lower in the near future.
PublicationGovernment Connections and Financial Constraints : Evidence from a Large Representative Sample of Chinese Firms(World Bank, Washington, DC, 2013-02)This paper examines the role of firms' government connections, defined by government intervention in the appointments of Chief Executive Officers and the status of state ownership, in determining the severity of financial constraints faced by Chinese firms. In line with the previous literature, the paper demonstrates that investment by non-state firms is highly sensitive to internal cash flows, while no such sensitivity is found for government-owned enterprises. Even within the subset of non-state firms, government connections are associated with substantially less severe financial constraints (less reliance on internal cash flows to fund investment). The paper also finds that large non-state firms with weak government connections are especially financially constrained, due perhaps to the formidable hold that their state rivals have on financial resources after the "grabbing-the-big-and-letting-go-the-small" privatization program in China. Firms with government-appointed Chief Executive Officers also have significantly lower investment intensities, due perhaps to their lower-powered incentives. The empirical results suggest that government connections play an important role in explaining Chinese firms' investment behavior and financing conditions, and provide further evidence on the nature of the misallocation of credit by China's dominant state-owned banks.
PublicationExternal Shocks, Fiscal Policy and Income Distribution : Alternative Scenarios for Moldova(World Bank, Washington, DC, 2013-02)The economy of Moldova, which has one of the lowest levels of gross national income per capita in the World Bank Europe and Central Asia region, is strongly linked to the outside world, especially to the neighboring countries of the European Union and the Commonwealth of Independent States. This paper analyzes a set of scenarios for Moldova up to 2020, defined to shed light on issues related to an alternative future dominated by goods and services exports as opposed to today's reliance on worker remittances. The analysis is based on a Moldovan version of MAMS (Maquette for Millennium Development Goal Simulations), a CGE (Computable General Equilibrium) model for country strategy analysis. In sum, the impact of increased export demand and productivity growth is more positive when these shocks are directed to manufacturing, a sector more heavily linked to international trade, compared with agriculture. Increased productivity in transport and communications generates faster growth with widely diffused benefits, reaching households in a relatively equitable manner compared with foreign trade-induced growth. A comparison between adverse shocks in two areas, higher energy import prices, and lower remittances, designed to have similar effects on gross domestic product, suggests that a remittance shock leads to less of a poverty increase, related to the fact that remittance-receiving households are not highly vulnerable; among sectors, agriculture is most vulnerable due to heavy energy reliance. Finally, well-targeted transfer schemes may offer an effective tool for diffusing the benefits of economic growth to the whole population, perhaps also contributing to more general acceptance of structural change.
PublicationWeight Calculations for Panel Surveys with Sub-sampling and Split-off Tracking(World Bank, Washington, DC, 2013-02)The Living Standards Measurement Study -- Integrated Surveys on Agriculture project collects agricultural and livelihood data in seven countries in Sub-Saharan Africa. In order to maintain representativeness as much as possible over multiple rounds of data collection, a sub-sample of households are selected to have members that have left the household tracked and interviewed in their new location with their new household members. Since the sub-sampling occurs at the level of the household but tracking occurs at the level of the individual, a number of issues arise with the correct calculation for the sub-sampling and attrition corrections. This paper is based on the panel weight calculations for the initial rounds of the Integrated Surveys on Agriculture surveys in Uganda and Tanzania, and describes the methodology used for calculating the weight components related to sub-sampling, tracking, and attrition, as well as the criteria used for trimming and post-stratification. It also addresses complications resulting from members previously classified as having attrited from the sample returning in later rounds.
PublicationPoverty, Inequality, and the Local Natural Resource Curse(World Bank, Washington, DC, 2013-02)The extent to which local communities benefit from commodity booms has been subject to wide but inconclusive investigations. This paper draws from a new district-level database to investigate the local impact on socioeconomic outcomes of mining activity in Peru, which grew almost twentyfold in the last two decades. The authors find evidence that producing districts have better average living standards than otherwise similar districts: larger household consumption, lower poverty rate, and higher literacy. However, the positive impacts from mining decrease significantly with administrative and geographic distance from the mine, while district-level consumption inequality increases in all districts belonging to a producing province. The inequalizing impact of mining activity, both across and within districts, may explain part of the current social discontent with mining activities in the country, even despite its enormous revenues.