Robust investment climate effects on alternative firm-level productivity measures
Developing countries are increasingly concerned about improving country competitiveness and productivity, as they face the increasing pressures of globalization and attempt to improve economic growth and reduce poverty. Among such countries, Investment Climate surveys (ICs) at the firm level, have become the standard way for the World Bank to identify key obstacles to country competitiveness, in order to prioritize policy reforms for enhancing competitiveness. Given the surveys objectives and the nature and limitations of the data collected, this paper discusses the advantages and disadvantages of using different total factor productivity (TFP) measures. The main objective is to develop a methodology to generate robust investment climate impacts (elasticities) on TFP under alternative measures. The paper applies it to the data collected for ICs in four developing countries: Costa Rica, Guatemala, Honduras and Nicaragua. Observations on logarithms of the production function variables are pooled across three countries (Guatemala, Honduras and Nicaragua). Endogeneity of the production function inputs and of the investment climate variables is addressed by using observable firm level information, a variant of the control function approach, considering IC variables as proxy and also by aggregating certain investment climate variables by industry and region. It is shown that by using this methodology it is possible to get robust IC “elasticities” on TFP for more than ten different TFP measures. The robust IC elasticity estimates for the five countries show how relevant the investment climate variables are to explain the average productivity of each country. IC variables in several categories (red tape, corruption and crime, infrastructure and, quality and innovation) account for over 30 percent of average productivity. The policy implications are clear: investment climate matters and the relative impact of the various investment climate variables helps indentifying where reform efforts should be directed in each country. It is argued that this robust methodology can be used as a benchmark to assess cross-country productivity effects in other IC surveys. This is important since similar firm-level IC surveys on several sectors (manufacturing, services, etc.) are now available at the World Bank for more than 65 developing countries.
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Jean-Jacques Dethier & Maximilian Hirn & Stéphane Straub, 2011.
"Explaining Enterprise Performance in Developing Countries with Business Climate Survey Data,"
World Bank Research Observer,
World Bank Group, vol. 26(2), pages 258-309, August.
- Dethier, Jean-Jacques & Hirn, Maximilian & Straub, Stephane, 2008. "Explaining Enterprise Performance in Developing Countries with Business Climate Survey Data," Policy Research Working Paper Series 4792, The World Bank.
- Cole, Harold L. & Ohanian, Lee E. & Riascos, Alvaro & Schmitz, James Jr, 2005.
"Latin America in the rearview mirror,"
Journal of Monetary Economics,
Elsevier, vol. 52(1), pages 69-107, January.
- Harold L. Cole & Lee E. Ohanian & Alvaro Riascos & James A. Schmitz, Jr., 2004. "Latin America in the Rearview Mirror," NBER Working Papers 11008, National Bureau of Economic Research, Inc.
- Harold L. Cole & Lee E. Ohanian & Alvaro Riascos & James A. Schmitz, 2004. "Latin America in the rearview mirror," Staff Report 351, Federal Reserve Bank of Minneapolis.
- R Blundell & Steven Bond, .
"Initial conditions and moment restrictions in dynamic panel data model,"
W14&104., Economics Group, Nuffield College, University of Oxford.
- Blundell, Richard & Bond, Stephen, 1998. "Initial conditions and moment restrictions in dynamic panel data models," Journal of Econometrics, Elsevier, vol. 87(1), pages 115-143, August.
- Richard Blundell & Steve Bond, 1995. "Initial conditions and moment restrictions in dynamic panel data models," IFS Working Papers W95/17, Institute for Fiscal Studies.
- Blundell, R. & Bond, S., 1995. "Initial Conditions and Moment Restrictions in Dynamic Panel Data Models," Economics Papers 104, Economics Group, Nuffield College, University of Oxford.
- Djankov, Simeon & La Porta, Rafael & Lopez-de-Silanes, Florencio & Shleifer, Andrei, 2001.
"The Regulation of Entry,"
Working Paper Series
rwp01-015, Harvard University, John F. Kennedy School of Government.
- Simeon Djankov & Rafael LaPorta & Florencio Lopez-de-Silanes & Andrei Shleifer, . "The Regulation of Entry," Working Paper 19462, Harvard University OpenScholar.
- Djankov, Simeon & La Porta, Rafael & Shleifer, Andrei & Lopez de Silanes, Florencio, 2001. "The regulation of entry," Policy Research Working Paper Series 2661, The World Bank.
- Simeon Djankov & Rafael La Porta & Florencio Lopez-de-Silanes & Andre Shleifer, 2000. "The Regulation of Entry," Harvard Institute of Economic Research Working Papers 1904, Harvard - Institute of Economic Research.
- Simeon Djankov & Rafael La Porta & Florencio LopezdeSilanes & Andrei Shleifer, 2000. "The Regulation of Entry," NBER Working Papers 7892, National Bureau of Economic Research, Inc.
- Djankov, Simeon & La Porta, Rafael & López-de-Silanes, Florencio & Shleifer, Andrei, 2001. "The Regulation of Entry," CEPR Discussion Papers 2953, C.E.P.R. Discussion Papers.
- Karim Chalak & Halbert White, 2007. "An Extended Class of Instrumental Variables for the Estimation of Causal Effects," Boston College Working Papers in Economics 692, Boston College Department of Economics, revised 30 Nov 2009.
- Richard Blundell & James Powell, 2001. "Endogeneity in nonparametric and semiparametric regression models," CeMMAP working papers CWP09/01, Centre for Microdata Methods and Practice, Institute for Fiscal Studies.
- Edward C. Prescott, 1997.
"Needed: a theory of total factor productivity,"
242, Federal Reserve Bank of Minneapolis.
- Alexander, W. Robert J. & Bell, John. D. & Knowles, Stephen, 2004.
"Quantifying Compliance Costs for Small Businesses in New Zealand,"
Working Paper Series
3872, Victoria University of Wellington, The New Zealand Institute for the Study of Competition and Regulation.
- W. Robert & J. Alexander & John Bell & Stephen Knowles, 2005. "Quantifying compliance costs of small businesses in New Zealand," New Zealand Economic Papers, Taylor & Francis Journals, vol. 39(1), pages 37-50.
- Richard Blundell & Stephen Bond, 2000.
"GMM Estimation with persistent panel data: an application to production functions,"
Taylor & Francis Journals, vol. 19(3), pages 321-340.
- Richard Blundell & Steve Bond, 1999. "GMM estimation with persistent panel data: an application to production functions," IFS Working Papers W99/04, Institute for Fiscal Studies.
- Ackerberg, Daniel & Caves, Kevin & Frazer, Garth, 2006. "Structural identification of production functions," MPRA Paper 38349, University Library of Munich, Germany.
- John McMillan, 1998. "Managing Economic Change: Lessons from New Zealand," The World Economy, Wiley Blackwell, vol. 21(6), pages 827-843, 08.
- Chamberlain, Gary, 1982. "Multivariate regression models for panel data," Journal of Econometrics, Elsevier, vol. 18(1), pages 5-46, January.
When requesting a correction, please mention this item's handle: RePEc:cte:werepe:we1201. 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: (Ana Poveda)
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 references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link 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 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.