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Administrative barriers to foreign investment in developing countries

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  • Morisset, Jacques
  • Lumenga Neso, Olivier

Abstract

Recent international experience has shown that excessively complex administrative procedures, required to establish, and operate a business, discourage inflows of foreign direct investment. The authors present a new database on the administrative costs faced by private investors in 32 developing countries. The database is much more comprehensive than the existing sources, as it contains not only information on general entry procedures, such as business and tax registration, but also captures regulation on land access, site development, import procedures, and inspections, Thedata include measures on the number of procedures, direct monetary costs, and time. The cost of administrative procedures vary significantly across countries. The most important barriers appear to be the delays associated with securing land access, and obtaining building permits, which in several countries, take more than two years. Countries that impose excessive administrative costs on entry, tend to be equally intrusive in firm operations, thereby weakening the argument that barriers to entry, are a substitute for the government's unwillingness, or inability to regulate enterprise operations. The level of administrative costs is positively correlated with corruption incidence, and exhibits a negative correlation with the quality of governance, degree of openness, and public wages. These correlations suggest that administrative reforms, need to be incorporated into the broader agenda for reforms, such as trade and financial liberalization, the fight against corruption, and public sector administration.

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Bibliographic Info

Paper provided by The World Bank in its series Policy Research Working Paper Series with number 2848.

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Date of creation: 31 May 2002
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Handle: RePEc:wbk:wbrwps:2848

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Keywords: Economic Theory&Research; Decentralization; Environmental Economics&Policies; Enterprise Development&Reform; International Terrorism&Counterterrorism; Economic Theory&Research; National Governance; Environmental Economics&Policies; International Terrorism&Counterterrorism; Health Monitoring&Evaluation;

References

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  1. Bai, Chong-en & Wei, Shang-Jin, 2001. "The quality of bureaucracy and capital account policies," Policy Research Working Paper Series 2575, The World Bank.
  2. Bertrand, Marianne & Kramarz, Francis, 2002. "Does Entry Regulation Hinder Job Creation? Evidence from the French Retail Industry," IZA Discussion Papers 415, Institute for the Study of Labor (IZA).
  3. repec:fth:inseep:2001-12 is not listed on IDEAS
  4. Morisset, Jacques, 2000. "Foreign direct investment in Africa : policies also matter," Policy Research Working Paper Series 2481, The World Bank.
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Cited by:
  1. Zhang, Qing & Ogus, Anthony, 2005. "Licensing Procedures in Developing Countries: Should They Be Part of the Set-up Process?," Centre on Regulation and Competition (CRC) Working papers 30671, University of Manchester, Institute for Development Policy and Management (IDPM).
  2. Leonardo Becchetti & Nada Kobeissi, 2010. "Role of Governance and Institutional Environment in Affecting Cross Border M&As, Alliances and Project Financing: Evidence from Emerging Markets," CEIS Research Paper 156, Tor Vergata University, CEIS, revised 28 May 2010.
  3. Krishna Chaitanya Vadlamannati & Arusha Cooray, 2012. "What Drives FDI Policy Liberalization? An Empirical Investigation," CAMA Working Papers 2012-27, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
  4. Pal, Sarmistha, 2013. "Corruption, Networking and Foreign Ownership: Recent Evidence from CEE Countries," IZA Discussion Papers 7636, Institute for the Study of Labor (IZA).

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