The forgotten rationale for policy reform : the productivity of investment projects
AbstractUsing economic rates of return from more than 1,200 public and private sector projects implemented in 61 developing countries, the authors analyze determinants of investment productivity. Results from Tobit estimation demonstrate that the degree of countrywide policy distortions - macroeconomic, exchange rate, trade and pricing - critically affects the productivity of investments. Countries with undistorted policies are likely to be unproductive investments. In countries with distorted policies, investments are likely to be unproductive. And within a country, investments become more productive when economic policymaking improves. The productivity of projects in the tradable sectors are also affected (in a nonlinear fashion) by the size of a country's public investment program. The authors discuss possible selection biases in this data set, present tests of robustness, and highlight policy implications. In particular, donor financing for improvements in the policy climate is likely to pay off. A powerful rationale for supporting structual reform is that it raises the productivity of both public and private investments.
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Bibliographic InfoPaper provided by The World Bank in its series Policy Research Working Paper Series with number 1549.
Date of creation: 30 Nov 1995
Date of revision:
Payment Systems&Infrastructure; ICT Policy and Strategies; Environmental Economics&Policies; Decentralization; Economic Theory&Research; ICT Policy and Strategies; Environmental Economics&Policies; Economic Theory&Research; Economic Stabilization; Achieving Shared Growth;
Other versions of this item:
- Jonathan Isham & Daniel Kaufmann, 1999. "The Forgotten Rationale For Policy Reform: The Productivity Of Investment Projects," The Quarterly Journal of Economics, MIT Press, vol. 114(1), pages 149-184, February.
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