IDEAS home Printed from
   My bibliography  Save this paper

Deals Versus Rules: Policy Implementation Uncertainty and Why Firms Hate It


  • Mary Hallward-Driemeier
  • Gita Khun-Jush
  • Lant Pritchett

    () (Center for International Development at Harvard University)


Firms in Africa report "regulatory and economic policy uncertainty" as a top constraint to their growth. We argue 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 (e.g. bribes) and characteristics (e.g. political connections). Using Enterprise Survey data we demonstrate 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. We show 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. Finally, we show 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.

Suggested Citation

  • Mary Hallward-Driemeier & Gita Khun-Jush & Lant Pritchett, 2010. "Deals Versus Rules: Policy Implementation Uncertainty and Why Firms Hate It," CID Working Papers 210, Center for International Development at Harvard University.
  • Handle: RePEc:cid:wpfacu:210

    Download full text from publisher

    File URL:
    Download Restriction: no

    Other versions of this item:

    References listed on IDEAS

    1. Marcel Fafchamps, 2004. "Market Institutions in Sub-Saharan Africa: Theory and Evidence," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262062364, January.
    2. Pritchett, Lant & Sethi, Geeta, 1994. "Tariff Rates, Tariff Revenue, and Tariff Reform: Some New Facts," World Bank Economic Review, World Bank Group, vol. 8(1), pages 1-16, January.
    3. Daron Acemoglu & Simon Johnson & James A. Robinson, 2001. "The Colonial Origins of Comparative Development: An Empirical Investigation," American Economic Review, American Economic Association, vol. 91(5), pages 1369-1401, December.
    4. Dani Rodrik & Arvind Subramanian & Francesco Trebbi, 2004. "Institutions Rule: The Primacy of Institutions Over Geography and Integration in Economic Development," Journal of Economic Growth, Springer, vol. 9(2), pages 131-165, June.
    5. Sequeira, Sandra & Djankov, Simeon, 2010. "An Empirical Study of Corruption in Ports," MPRA Paper 21791, University Library of Munich, Germany.
    6. Arne Bigsten & Mans Söderbom, 2006. "What Have We Learned from a Decade of Manufacturing Enterprise Surveys in Africa?," World Bank Research Observer, World Bank Group, vol. 21(2), pages 241-265.
    7. Hausmann, Ricardo & Rodrik, Dani, 2003. "Economic development as self-discovery," Journal of Development Economics, Elsevier, vol. 72(2), pages 603-633, December.
    8. Gonzalez, Alvaro & Ernesto Lopez-Cordova, J. & E. Valladares, Elio, 2007. "The incidence of graft on developing-country firms," Policy Research Working Paper Series 4394, The World Bank.
    9. Andrei Shleifer & Robert W. Vishny, 1993. "Corruption," The Quarterly Journal of Economics, Oxford University Press, vol. 108(3), pages 599-617.
    10. 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.
    11. Ricardo Hausmann & Bailey Klinger & Rodrigo Wagner, 2008. "Doing Growth Diagnostics in Practice: A 'Mindbook'," CID Working Papers 177, Center for International Development at Harvard University.
    12. Irina Slinko & Ekaterina Zhuravskaya & Evgeny Yakovlev, 2005. "Laws for Sale: Evidence from Russia," American Law and Economics Review, Oxford University Press, vol. 7(1), pages 284-318.
    13. Arbache, Jorge Saba & Page, John, 2007. "More growth or fewer collapses ? a new look at long run growth in Sub-Saharan Africa," Policy Research Working Paper Series 4384, The World Bank.
    14. North,Douglass C. & Wallis,John Joseph & Weingast,Barry R., 2013. "Violence and Social Orders," Cambridge Books, Cambridge University Press, number 9781107646995, March.
    15. Easterly, William & Levine, Ross, 2003. "Tropics, germs, and crops: how endowments influence economic development," Journal of Monetary Economics, Elsevier, vol. 50(1), pages 3-39, January.
    16. Ricardo Hausmann & Bailey Klinger, 2008. "Growth Diagnostics: Perú," Research Department Publications 2005, Inter-American Development Bank, Research Department.
    17. Arvind Subramanian & Francesco Trebbi & Dani Rodrik, 2002. "Institutions Rule; The Primacy of Institutions over Integration and Geography in Economic Development," IMF Working Papers 02/189, International Monetary Fund.
    18. Ricardo Hausmann, 2008. "The Other Hand: High Bandwidth Development Policy," CID Working Papers 179, Center for International Development at Harvard University.
    19. Thorsten Beck & Asli Demirgüç-Kunt & Vojislav Maksimovic, 2005. "Financial and Legal Constraints to Growth: Does Firm Size Matter?," Journal of Finance, American Finance Association, vol. 60(1), pages 137-177, February.
    20. Christopher J. Green & Colin Kirkpatrick & Victor Murinde (ed.), 2005. "Finance and Development," Books, Edward Elgar Publishing, number 2764.
    21. Hausmann, Ricardo & Klinger, Bailey, 2008. "Growth Diagnostics in Peru," Working Paper Series rwp08-62, Harvard University, John F. Kennedy School of Government.
    22. Raymond Fisman, 2001. "Estimating the Value of Political Connections," American Economic Review, American Economic Association, vol. 91(4), pages 1095-1102, September.
    Full references (including those not matched with items on IDEAS)


    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.

    Cited by:

    1. D'Erasmo, Pablo N. & Moscoso Boedo, Hernan J., 2012. "Financial structure, informality and development," Journal of Monetary Economics, Elsevier, vol. 59(3), pages 286-302.
    2. Marc Schiffbauer & Abdoulaye Sy & Sahar Hussain & Hania Sahnoun & Philip Keefer, 2015. "Jobs or Privileges : Unleashing the Employment Potential of the Middle East and North Africa," World Bank Publications, The World Bank, number 20591.
    3. Cull, Robert & Xu, Lixin Colin & Yang, Xi & Zhou, Li-An & Zhu, Tian, 2017. "Market facilitation by local government and firm efficiency: Evidence from China," Journal of Corporate Finance, Elsevier, vol. 42(C), pages 460-480.
    4. Pratap Bhanu Mehta & Michael Walton, 2014. "Ideas, interests and the politics of development change in India: capitalism, inclusion and the state," Brooks World Poverty Institute Working Paper Series esid-036-14, BWPI, The University of Manchester.
    5. Raj Nallari & Breda Griffith & Shahid Yusuf, 2012. "Geography of Growth : Spatial Economics and Competitiveness," World Bank Publications, The World Bank, number 6020.
    6. Piffaretti, Nadia F., 2010. "From Rent-seeking to Profit-creation: Private Sector Development and Economic Turnaround in Fragile States," MPRA Paper 26558, University Library of Munich, Germany.
    7. Sebnem Kalemli-Ozcan & Bent E. Sørensen, 2014. "Misallocation, Property Rights, and Access to Finance: Evidence from within and across Africa," NBER Chapters,in: African Successes, Volume III: Modernization and Development, pages 183-211 National Bureau of Economic Research, Inc.
    8. World Bank, 2012. "World Development Report 2013
      [Informe anual del Banco Mundial de 2013 : poner fin a la pobreza extrema, promover la prosperidad compartida - informe principal]
      ," World Bank Publications, The World Bank, number 11843.
    9. Ishac Diwan & Philip Keefer & Marc Schiffbauer, 2016. "Pyramid Capitalism: Cronyism, Regulation, and Firm Productivity in Egypt," IDB Publications (Working Papers) 7873, Inter-American Development Bank.
    10. World Bank & International Finance Corporation, 2013. "Doing Business 2014 : Understanding Regulations for Small and Medium-Size Enterprises," World Bank Publications, The World Bank, number 16204.
    11. Ishac Diwan & Philip Keefer & Marc Schiffbauer, 2015. "Pyramid Capitalism: Cronyism, Regulation, and Firm Productivity in Egypt," CID Working Papers 291, Center for International Development at Harvard University.
    12. Sequeira, Sandra & Djankov, Simeon, 2014. "Corruption and firm behavior: Evidence from African ports," Journal of International Economics, Elsevier, vol. 94(2), pages 277-294.
    13. Lant Pritchett & Mary Hallward-Driemeier, 2010. "How Business is Done and the 'Doing Business' Indicators: The Investment Climate when Firms have Climate Control," CID Working Papers 211, Center for International Development at Harvard University.
    14. Diwan, Ishac & Jamal Ibrahim Haidar, "undated". "Do Political Connections Reduce Job Creation? Evidence from Lebanon," Working Paper 414186, Harvard University OpenScholar.
    15. Lixin Colin Xu, 2011. "The Effects of Business Environments on Development: Surveying New Firm-level Evidence," World Bank Research Observer, World Bank Group, vol. 26(2), pages 310-340, August.
    16. Kaufmann, Daniel & Kraay, Aart & Mastruzzi, Massimo, 2010. "The worldwide governance indicators : methodology and analytical issues," Policy Research Working Paper Series 5430, The World Bank.
    17. Mary Hallward-Driemeier & Lant Pritchett, 2015. "How Business Is Done in the Developing World: Deals versus Rules," Journal of Economic Perspectives, American Economic Association, vol. 29(3), pages 121-140, Summer.
    18. Iacovone,Leonardo & Ramachandran,Vijaya & Schmidt,Martin, 2013. "Stunted growth : why don't African firms create more jobs ?," Policy Research Working Paper Series 6727, The World Bank.
    19. Nurullah Gur, 2012. "Financial Constraints, Quality of Institutions and Firm Size: What Do Perceptions Tell Us?," Eurasian Economic Review, Springer;Eurasia Business and Economics Society, vol. 2(2), pages 17-36, December.
    20. AfDB AfDB, . "Africa Competitiveness Report 2013," Africa Competitiveness Report, African Development Bank, number 456, July-Dece.
    21. Alan Gelb, Christian Meyer, and Vijaya Ramachandran, 2014. "Development as Diffusion: Manufacturing Productivity and Sub-Saharan Africa’s Missing Middle - Working Paper 357," Working Papers 357, Center for Global Development.

    More about this item


    Decision-Making under Risk and Uncertainty; Fiscal Policies and Behavior of Firms; Labor Demand; Regulation and Business Law; Informal Sector;

    JEL classification:

    • 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, Innovation, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements


    Access and download statistics


    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:cid:wpfacu:210. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Chuck McKenney). General contact details of provider: .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.