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The Forgotten Rationale For Policy Reform: The Productivity Of Investment Projects

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Author Info
Jonathan Isham
Daniel Kaufmann

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Abstract

Using economic rates of return from World Bank-funded investments, we investigate how country characteristics and policies that influence aggregate performance affect investment productivity. Controlling for other characteristics, countries with undistorted (distorted) macroeconomic, exchange rate, trade, and pricing policies have highly productive (unproductive) investments. No type of project-in tradable or nontradable sectors-can be ''insulated'' from poor policies, where returns on investments are about ten percentage points lower. Productivity increases when policies improve within a country. Projects are also affected, nonlinearly, by the size of the public investment program where policies are undistorted. The results offer new evidence on benefits from policy reform and challenge conventional cost-benefit analysis. © 2000 the President and Fellows of Harvard College and the Massachusetts Institute of Technology

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Article provided by MIT Press in its journal The Quarterly Journal of Economics.

Volume (Year): 114 (1999)
Issue (Month): 1 (February)
Pages: 149-184
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Handle: RePEc:tpr:qjecon:v:114:y:1999:i:1:p:149-184

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  1. Romer, Paul M, 1986. "Increasing Returns and Long-run Growth," Journal of Political Economy, University of Chicago Press, vol. 94(5), pages 1002-37, October. [Downloadable!] (restricted)
  2. Robert G. King & Sergio Rebelo, 1990. "Public Policy and Economic Growth: Developing Neoclassical Implications," NBER Working Papers 3338, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  3. Levine, Ross & Renelt, David, 1992. "A Sensitivity Analysis of Cross-Country Growth Regressions," American Economic Review, American Economic Association, vol. 82(4), pages 942-63, September. [Downloadable!] (restricted)
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  4. Isham, Jonathan & Narayan, Deepa & Pritchett, Lant, 1995. "Does Participation Improve Performance? Establishing Causality with Subjective Data," World Bank Economic Review, Oxford University Press, vol. 9(2), pages 175-200, May.
  5. Jeffrey D. Sachs & Andrew Warner, 1995. "Economic Reform and the Process of Global Integration," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 26(1995-1), pages 1-118. [Downloadable!]
  6. Barro, Robert J, 1990. "Government Spending in a Simple Model of Endogenous Growth," Journal of Political Economy, University of Chicago Press, vol. 98(5), pages S103-26, October. [Downloadable!] (restricted)
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  7. N. Gregory Mankiw & David Romer & David N. Weil, 1992. "A Contribution to the Empirics of Economic Growth," NBER Working Papers 3541, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  8. Lucas, Robert Jr., 1988. "On the mechanics of economic development," Journal of Monetary Economics, Elsevier, vol. 22(1), pages 3-42, July. [Downloadable!] (restricted)
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(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Jonathan Beynon, 2003. "Poverty Efficient Aid Allocations - Collier/Dollar Revisited," Working Papers 2, Economics and Statistics Analysis Unit (ESAU), Overseas Development Institute. [Downloadable!]
  2. Sudeshna Ghosh Banerjee & Michael C. Munger, 2004. "Move to markets? An empirical analysis of privatization in developing countries," Journal of International Development, John Wiley & Sons, Ltd., vol. 16(2), pages 213-240. [Downloadable!]
  3. Hicks, Robert & Parks, Bradley & Tierney, Michael, 2005. "Explaining the Allocation of Bilateral and Multilateral Environmental Aid to Developing Countries," 2005 Annual meeting, July 24-27, Providence, RI 19346, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association). [Downloadable!]
  4. Johann Graf Lambsdorff, 2004. "Korrupte Staatsangestellte oder korrupte Regierungen: wer schadet mehr?," Vierteljahrshefte zur Wirtschaftsforschung / Quarterly Journal of Economic Research, DIW Berlin, German Institute for Economic Research, vol. 73(2), pages 200-211.
  5. Carol H. Shiue & Wolfgang Keller, 2004. "Markets in China and Europe on the Eve of the Industrial Revolution," NBER Working Papers 10778, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  6. Ismihan, Mustafa & Ozkan, F Gulcin, 2007. "Public investment: a remedy or a curse? Examining the Role of Public Investment for Macroeconomic Performance," CEPR Discussion Papers 6139, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  7. Bu, Yisheng, 2004. "Could Foreign-Aid Financing Cause Excess Depreciation of Public Capital? Two Simple Hypothetical Cases," Economic Analysis and Policy (EAP), Queensland University of Technology (QUT), School of Economics and Finance, vol. 34(2), pages 189-202, September. [Downloadable!]
  8. Pierre-Olivier Gourinchas & Olivier Jeanne, 2003. "The Elusive Gains from International Financial Integration," NBER Working Papers 9684, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  9. Tito Cordella & Giovanni Dell'Ariccia, 2003. "Budget Support versus Project Aid," IMF Working Papers 03/88, International Monetary Fund. [Downloadable!]
  10. Eduardo A. Cavallo & Christian Daude, 2008. "Public Investment in Developing Countries: A Blessing or a Curse?," RES Working Papers 4597, Inter-American Development Bank, Research Department. [Downloadable!]
  11. Guillaumont, Patrick & Guillaumont Jeanneney, Sylviane, 2007. "Big Push versus Absorptive Capacity: How to Reconcile the Two Approaches," Working Papers UNU-WIDER Research Paper , World Institute for Development Economic Research (UNU-WIDER). [Downloadable!]
    Other versions:
  12. Waelbroeck, Jean, 1998. "Half a century of development economics : a review based on the"Handbook of Development Economics"," Policy Research Working Paper Series 1925, The World Bank. [Downloadable!]
  13. Wane, Waly, 2004. "The quality of foreign aid : country selectivity or donors incentives?," Policy Research Working Paper Series 3325, The World Bank. [Downloadable!]
  14. Dollar, David & Levin, Victoria, 2004. "Increasing selectivity of foreign aid, 1984-2002," Policy Research Working Paper Series 3299, The World Bank. [Downloadable!]
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