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The impact of the investment climate on employment growth : does Sub-Saharan Africa mirror other low-income regions ?

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  • Aterido, Reyes
  • Hallward-Driemeier, Mary

Abstract

Using survey data from 86,000 enterprises in 104 countries, including 17,000 enterprises in 31 Sub-Saharan African countries, this paper finds that average enterprise-level employment growth rates are remarkably similar across regions. This is true despite significant differences in the quality of the investment climate in which these enterprises operate. Objective measures of investment climate conditions (including the number of outages, the share of firms with bank loans, and others) indicate that conditions are most challenging within Sub-Saharan Africa, as well as for smaller enterprises. However, enterprises’ employment in Sub-Saharan Africa is less sensitive to changes in access to infrastructure and finance relative to other low-income regions. This can be understood by looking at non-linear effects by firm size -- and the finding that these size effects are particularly strong within Sub-Saharan Africa. Although unreliable infrastructure services and inadequate access to finance generally hamper growth, in Sub-Saharan Africa they are actually associated with higher employment growth rates among micro enterprises. Although employment growth is good news in Sub-Saharan Africa, that much of the expanded employment is in small, labor-intensive, less productive enterprises raises longer-run concerns about the efficiency of the allocation of resources and aggregate productivity growth in the region.

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Bibliographic Info

Paper provided by The World Bank in its series Policy Research Working Paper Series with number 5218.

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Date of creation: 01 Feb 2010
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Handle: RePEc:wbk:wbrwps:5218

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Related research

Keywords: Access to Finance; Banks&Banking Reform; Microfinance; Labor Policies; Investment and Investment Climate;

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Cited by:
  1. Seker, Murat & Yang, Judy S., 2012. "How bribery distorts firm growth : differences by firm attributes," Policy Research Working Paper Series 6046, The World Bank.
  2. Hinh T. Dinh & George R.G. Clarke, 2012. "Performance of Manufacturing Firms in Africa : An Empirical Analysis," World Bank Publications, The World Bank, number 11959, October.
  3. Pasali, Selahattin Selsah, 2013. "Where is the cheese ? synthesizing a giant literature on causes and consequences of financial sector development," Policy Research Working Paper Series 6655, The World Bank.
  4. 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.

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