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A Framework for Cross-Country Comparisons of Public Infrastructure Constraints on Firm Growth


  • Carlin, Wendy
  • Schaffer, Mark E
  • Seabright, Paul


How should a policy-maker prioritize interventions to improve the public infrastructure with which firms operate and how large are the benefits from doing so likely to be? To address these questions we use survey data on the obstacles arising from poor quality public inputs that managers face in running their firms. Our conceptual framework centres on the public input character of physical infrastructure and institutions, and uses an O-ring production function to model the impact of poor quality infrastructure on output. Using survey data from over 72,000 firms in 95 countries, we verify the consistency of the within- and cross-country variation in reported constraints with predictions of the model. We use the framework to construct estimates of the impact on output and productivity of improvements in the quality of public inputs and how these differ between rich and poor countries. We show how a policy-maker can use the country-level data and the benchmarks estimated from the cross-country data to prioritize public infrastructure investment in their country. Our results indicate that priorities vary widely among countries and suggest a degree of caution about donor policies tying development assistance to generic improvements in the business environment. The results also suggest that the benefits arising directly from such improvements are likely to be modest relative to the scale of impact implied by aggregate-level studies of the role of institutions in economic development.

Suggested Citation

  • Carlin, Wendy & Schaffer, Mark E & Seabright, Paul, 2010. "A Framework for Cross-Country Comparisons of Public Infrastructure Constraints on Firm Growth," CEPR Discussion Papers 7662, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:7662

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    References listed on IDEAS

    1. Philippe Aghion & Yann Algan & Pierre Cahuc & Andrei Shleifer, 2010. "Regulation and Distrust," The Quarterly Journal of Economics, Oxford University Press, vol. 125(3), pages 1015-1049.
    2. Angus Deaton, 2009. "Instruments of development: Randomization in the tropics, and the search for the elusive keys to economic development," Working Papers 1128, Princeton University, Woodrow Wilson School of Public and International Affairs, Center for Health and Wellbeing..
    3. Carlin, Wendy & Schaffer, Mark E & Seabright, Paul, 2006. "Where Are the Real Bottlenecks? Evidence from 20,000 Firms in 60 Countries About the Shadow Costs of Constraints to Firm Performance," CEPR Discussion Papers 5719, C.E.P.R. Discussion Papers.
    4. 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.
    5. Hallward-Driemeier, Mary & Aterido, Reyes, 2009. "Comparing Apples with....Apples : how to make (more) sense of subjective rankings of constraints to business," Policy Research Working Paper Series 5054, The World Bank.
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    Cited by:

    1. Wendy Carlin & Mark Schaffer, 2012. "The Business Environment in the Transition," CESifo Working Paper Series 3934, CESifo Group Munich.
    2. Carlin, Wendy & Schaffer, Mark & Seabright, Paul, 2013. "Soviet power plus electrification: What is the long-run legacy of communism?," Explorations in Economic History, Elsevier, vol. 50(1), pages 116-147.
    3. Nakhoda, Aadil, 2014. "The impact of electricity constraints on access to finance: A firm-level study," MPRA Paper 59507, University Library of Munich, Germany.

    More about this item


    constraints on growth; finance; infrastructure; institutions; O-ring production function; public infrastructure; public inputs; subjective data;

    JEL classification:

    • H41 - Public Economics - - Publicly Provided Goods - - - Public Goods
    • O12 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
    • O57 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Comparative Studies of Countries


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