Deals versus rules : policy implementation uncertainty and why firms hate it
AbstractFirms in Africa report"regulatory and economic policy uncertainty"as a top constraint to their growth. This paper argues that often firms in Africa do not cope with policy rules, rather they face deals: firm-specific policy actions that can be influenced by firm actions (such as bribes) and characteristics (such as political connections). Using Enterprise Surveydata, the paper demonstrates huge variability in reported policy actions across firms notionally facing the same policy. The within-country dispersion in firm-specific policy actions is larger than the cross-national differences in average policy. The analysis shows that variability in this policy implementation uncertainty within location-sector-size cells is correlated with firm growth rates. These measures of implementation variability are more strongly related to lower firm employment growth than are measures of"average"policy action. The paper shows that the de jure measures such as Doing Business indicators are virtually uncorrelated with ex-post firm-level responses, further evidence that deals rather than rules prevail in Africa. Strikingly, the gap between de jure and de facto conditions grows with the formal regulatory burden. The evidence also shows more burdensome processes open up more space for making deals; firms may not incur the official costs of compliance, but they still pay to avoid them. Finally, measures of institutional capacity and better governance are closely associated with perceived consistency in implementation.
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Bibliographic InfoPaper provided by The World Bank in its series Policy Research Working Paper Series with number 5321.
Date of creation: 01 May 2010
Date of revision:
Environmental Economics&Policies; Microfinance; Public Sector Corruption&Anticorruption Measures; Climate Change Policy and Regulation; Climate Change Economics;
Other versions of this item:
- Hallward-Driemeier, Mary & Khun-Jush, Gita & Pritchett, Lant, 2010. "Deals versus Rules: Policy Implementation Uncertainty and Why Firms Hate It," Working Paper Series rwp10-027, Harvard University, John F. Kennedy School of Government.
- Hallward-Driemeier, Mary & Khun-Jush, Gita & Pritchett, Lant, 2010. "Deals Versus Rules: Policy Implementation Uncertainty and Why Firms Hate It," Scholarly Articles 4448884, Harvard Kennedy School of Government.
- Mary Hallward-Driemeier & Gita Khun-Jush & Lant Pritchett, 2010. "Deals versus Rules: Policy Implementation Uncertainty and Why Firms Hate It," NBER Working Papers 16001, National Bureau of Economic Research, Inc.
- D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
- H32 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Firm
- J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
- K2 - Law and Economics - - Regulation and Business Law
- O17 - Economic Development, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements
This paper has been announced in the following NEP Reports:
- NEP-AFR-2010-06-04 (Africa)
- NEP-ALL-2010-06-04 (All new papers)
- NEP-ENV-2010-06-04 (Environmental Economics)
- NEP-REG-2010-06-04 (Regulation)
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