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Investment climate and international integration

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Author Info
Dollar, David
Hallward-Driemeier, Mary
Mengistae, Taye

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Abstract

Drawing on recently completed firm-level surveys in Bangladesh, Brazil, China, Honduras, India, Nicaragua, Pakistan, and Peru, this paper investigates the relationship between investment climate and international integration. These standardized surveys of large, random samples of firms in common sectors reveal how firms experience bottlenecks and delays in hard infrastructure such as power and telecom as well as in soft infrastructure such as customs administration. The authors focus primarily on measures of the time or monetary cost of different bottlenecks (e.g., days to clear goods through customs, days to get a telephone line, sales lost to power outages). For many of these costs, the obstacles are lower in China than in the South Asian or Latin American countries. There is also systematic variation across cities within countries. The authors estimate a probit function for the probability that a randomly chosen firm is foreign-invested and a separate probit for the probability that a randomly chosen firm is an exporter. These measures of international integration are higher where investment climate isbetter. For locations to take advantage of opportunities in the international market, they need good infrastructure and a sound regulatory environment. The interaction of openness and sound investment climate creates a good environment for investment and production. This paper helps explain why China has been so successful over the past decade, both in terms of integration and of rapid growth, while other countries have had varied success.

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Paper provided by The World Bank in its series Policy Research Working Paper Series with number 3323.

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Date of creation: 01 Jun 2004
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Handle: RePEc:wbk:wbrwps:3323

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Related research
Keywords: Economic Theory&Research; International Terrorism&Counterterrorism; ICT Policy and Strategies; Environmental Economics&Policies; Decentralization; Trade and Regional Integration; Environmental Economics&Policies; ICT Policy and Strategies; Governance Indicators; Economic Theory&Research;

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  2. Timothy J. Goodspeed & Jorge Martinez-Vazquez & Li Zhang, 2006. "Attracting FDI: Are Other Government Policies More Important than Taxation in Attracting FDI?," Hunter College Department of Economics Working Papers 414, Hunter College: Department of Economics. [Downloadable!]
  3. Chris Milner & Oliver Morrissey & Evious Zgovu, . "Trade Facilitation in Developing Countries," Discussion Papers 08/05, University of Nottingham, CREDIT. [Downloadable!]
  4. Muttur Ranganathan Narayana, 2008. "Globalization and Urban Growth: Evidence for Bangalore (India)," CIRJE F-Series CIRJE-F-544, CIRJE, Faculty of Economics, University of Tokyo. [Downloadable!]
  5. Hausman, Warren H. & Lee, Hau L. & Subramanian, Uma, 2005. "Global logistics indicators, supply chain metrics, and bilateral trade patterns," Policy Research Working Paper Series 3773, The World Bank. [Downloadable!]
  6. Castro, Lucio, 2007. "Infrastructure and the Location of Foreign Direct Investment A Regional Analysis," MPRA Paper 6736, University Library of Munich, Germany. [Downloadable!]
  7. Park, Innwon & Park, Soonchan, 2006. "Reform-creating regional trade agreements and foreign direct investment: applications for East Asia," MPRA Paper 1817, University Library of Munich, Germany, revised Jan 2007. [Downloadable!]
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  8. Yoshino, Yutaka, 2008. "Domestic constraints, firm characteristics, and geographical diversification of firm-level manufacturing exports in Africa," Policy Research Working Paper Series 4575, The World Bank. [Downloadable!]
  9. Daniele, Vittorio & Marani, Ugo, 2006. "Do institutions matter for FDI? A comparative analysis for the MENA countries," MPRA Paper 2426, University Library of Munich, Germany. [Downloadable!]
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  11. Hazama, Yasushi, 2008. "The Political Economy of Growth: A Review," IDE Discussion Papers 141, Institute of Developing Economies, Japan External Trade Organization(JETRO). [Downloadable!]
  12. Escribano, Alvaro & Guasch, J. Luis, 2005. "Assessing the impact of the investment climate on productivity using firm-level data : methodology and the cases of Guatemala, Honduras, and Nicaragua," Policy Research Working Paper Series 3621, The World Bank. [Downloadable!]
  13. Jin, Songqing & Deininger, Klaus & Sur, Mona, 2005. "Sri Lanka's Rural Non-farm Economy: Removing Constraints to Pro-poor Growth," 2005 Annual meeting, July 24-27, Providence, RI 19280, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association). [Downloadable!]
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  14. Ferro, Gustavo & Antón Rodríguez, Martín, 2006. "Foreign direct investment. A bid for progress?," MPRA Paper 15093, University Library of Munich, Germany, revised Nov 2008. [Downloadable!]
  15. Gatti, Roberta & Honorati, Maddalena, 2008. "Informality among formal firms : firm-level, cross-country evidence on tax compliance and access to credit," Policy Research Working Paper Series 4476, The World Bank. [Downloadable!]
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  16. Timothy Goodspeed & Jorge Martinez-Vazquez & JLi Zhang, 2007. "Are Government Policies More Important Than Taxation in Attracting FDI?," International Studies Program Working Paper Series, at AYSPS, GSU paper0702, International Studies Program, Andrew Young School of Policy Studies, Georgia State University. [Downloadable!]
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