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What matters to African firms ? the relevance of perceptions data

Author

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  • Gelb, Alan
  • Ramachandran, Vijaya
  • Shah, Manju Kedia
  • Turner, Ginger

Abstract

Can perceptions data help us understand investment climate constraints facing the private sector? Or do firms simply complain about everything? In this paper, the authors provide a picture of how firms'views on constraints differ across countries in Sub-Saharan Africa. Using the World Bank's Enterprise Surveys database, they find that reported constraints reflect country characteristics and vary systematically by level of income-the most elemental constraints to doing business (power, access to finance, ability to plan ahead) appear to be most binding at low levels of income. As countries develop and these elemental constraints are relaxed, governance-related constraints become more problematic. As countries move further up the income scale and the state becomes more capable, labor regulation is perceived to be more of a problem-business is just one among several important constituencies. The authors also consider whether firm-level characteristics-such as size, ownership, exporter status, and firms'own experience-affect firms'views on the severity of constraints. They find that, net of country and sector fixed effects and firm characteristics, firms'views do reflect their experience as evidenced by responses to other questions in surveys. The results suggest that there are both country-level and firm-level variations in the investment climate. Turning to the concept of"binding constraints,"the Enterprise Surveys do not generally suggest one single binding constraint facing firms in difficult business climates. However, there do appear to be groups of constraints that matter more at different income levels, with a few elemental constraints being especially important at low levels and a few regulatory constraints at high levels, but a difficult range of governance-related constraints at intermediate levels. Adjusting to a constraint does not mean that firms then do not recognize it-for example, generator-owning firms are not distinguishable from other firms when ranking electricity as a constraint. Overall, firms do appear to discriminate between constraints in a reasonable way. Their views can provide a useful first step in the business-government consultative process and help in prioritizing more specific behavioral analysis and policy reforms.

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  • Gelb, Alan & Ramachandran, Vijaya & Shah, Manju Kedia & Turner, Ginger, 2007. "What matters to African firms ? the relevance of perceptions data," Policy Research Working Paper Series 4446, The World Bank.
    • Handle: RePEc:wbk:wbrwps:4446
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    References listed on IDEAS

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    Cited by:

    1. T. Dinh, Hinh & Mavridis, Dimitris A. & Nguyen, Hoa B., 2010. "The binding constraint on firms'growth in developing countries," Policy Research Working Paper Series 5485, The World Bank.
    2. Tidiane Kinda, 2018. "The quest for non-resource-based FDI: Do taxes matter?," Macroeconomics and Finance in Emerging Market Economies, Taylor & Francis Journals, vol. 11(1), pages 1-18, January.
    3. Tidiane Kinda & Patrick Plane & Marie‐Ange Véganzonès‐Varoudakis, 2011. "Firm Productivity And Investment Climate In Developing Countries: How Does Middle East And North Africa Manufacturing Perform?," The Developing Economies, Institute of Developing Economies, vol. 49(4), pages 429-462, December.
    4. M.A. Véganzonès-Varoudakis & H. T. M. Nguyen, 2018. "Investment climate, outward orientation and manufacturing firm productivity: new empirical evidence," Applied Economics, Taylor & Francis Journals, vol. 50(53), pages 5766-5794, November.
    5. Bouton, Lawrence & Tiongson, Erwin R., 2010. "Subjective perceptions of financing constraints: How well do they reflect credit market conditions?," Emerging Markets Review, Elsevier, vol. 11(2), pages 98-105, June.
    6. Samyukta Bhupatiraju, 2020. "Multi-level Determinants of Inward FDI Ownership," Journal of Quantitative Economics, Springer;The Indian Econometric Society (TIES), vol. 18(2), pages 327-358, June.
    7. Florian Misch & Norman Gemmell & Richard Kneller, 2014. "Using surveys of business perceptions as a guide to growth-enhancing fiscal reforms," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 22(4), pages 683-725, October.
    8. Florian Misch & Norman Gemmell & Richard Kneller, 2008. "Business Perceptions, Fiscal Policy and Growth," Discussion Papers 08/10, University of Nottingham, CREDIT.
    9. World Bank, 2009. "The Gambia : An Assessment of the Investment Climate," World Bank Publications - Reports 12983, The World Bank Group.
    10. Diagne, Youssoupha S, 2013. "Impact of business environment on investment and output of manufacturing firms in Senegal," MPRA Paper 54227, University Library of Munich, Germany.
    11. Kinda, Tidiane, 2010. "Investment Climate and FDI in Developing Countries: Firm-Level Evidence," World Development, Elsevier, vol. 38(4), pages 498-513, April.
    12. Judy S. Yang, 2017. "The governance environment and innovative SMEs," Small Business Economics, Springer, vol. 48(3), pages 525-541, March.
    13. Michael Grimm & Simon Lange & Jann Lay, 2011. "Credit-constrained in risky activities? The determinants of capital stocks of micro and small firms in Western Africa," Courant Research Centre: Poverty, Equity and Growth - Discussion Papers 104, Courant Research Centre PEG.
    14. Fadil Sahiti & Helen Lawton Smith, 2017. "An application of growth diagnostics on the growth of firms: with evidence from Kosovo firms," Journal of Innovation and Entrepreneurship, Springer, vol. 6(1), pages 1-24, December.
    15. Akuriba, Margaret Atosina & Haagsma, Rein & Heerink, Nico & Dittoh, Saa, 2020. "Assessing governance of irrigation systems: A view from below," World Development Perspectives, Elsevier, vol. 19(C).
    16. World Bank, 2007. "An Assessment of the Investment Climate in Botswana : Volume I, Main Report," World Bank Publications - Reports 7093, The World Bank Group.
    17. Kenyon, Thomas, 2008. "Tax Evasion, Disclosure, and Participation in Financial Markets: Evidence from Brazilian Firms," World Development, Elsevier, vol. 36(11), pages 2512-2525, November.
    18. Mawhood, Rebecca & Gross, Robert, 2014. "Institutional barriers to a ‘perfect’ policy: A case study of the Senegalese Rural Electrification Plan," Energy Policy, Elsevier, vol. 73(C), pages 480-490.

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    Keywords

    ; Emerging Markets; Microfinance; Governance Indicators; Access to Finance;
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