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Investment climate and international integration

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  • Dollar, David
  • Hallward-Driemeier, Mary
  • Mengistae, Taye

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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Bibliographic Info

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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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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  1. Dollar, David & Hallward-Driemeier, Mary & Mengistae, Taye, 2005. "Investment Climate and Firm Performance in Developing Economies," Economic Development and Cultural Change, University of Chicago Press, vol. 54(1), pages 1-31, October.
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  17. Gallup, J.L. & Sachs, J.D. & Mullinger, A., 1999. "Geography and Economic Development," Papers 1, Chicago - Graduate School of Business.
  18. Limao, Nuno & Venables, Anthony J., 1999. "Infrastructure, geographical disadvantage, and transport costs," Policy Research Working Paper Series 2257, The World Bank.
  19. Stephen Knack & Philip Keefer, 1995. "Institutions And Economic Performance: Cross-Country Tests Using Alternative Institutional Measures," Economics and Politics, Wiley Blackwell, vol. 7(3), pages 207-227, November.
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