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Administrative barriers to foreign investment in developing countries

Author

Listed:
  • Morisset, Jacques
  • Lumenga Neso, Olivier

Abstract

Recent international experience has shown that excessively complex administrative procedures, required to establish, and operate a business, discourage inflows of foreign direct investment. The authors present a new database on the administrative costs faced by private investors in 32 developing countries. The database is much more comprehensive than the existing sources, as it contains not only information on general entry procedures, such as business and tax registration, but also captures regulation on land access, site development, import procedures, and inspections, Thedata include measures on the number of procedures, direct monetary costs, and time. The cost of administrative procedures vary significantly across countries. The most important barriers appear to be the delays associated with securing land access, and obtaining building permits, which in several countries, take more than two years. Countries that impose excessive administrative costs on entry, tend to be equally intrusive in firm operations, thereby weakening the argument that barriers to entry, are a substitute for the government's unwillingness, or inability to regulate enterprise operations. The level of administrative costs is positively correlated with corruption incidence, and exhibits a negative correlation with the quality of governance, degree of openness, and public wages. These correlations suggest that administrative reforms, need to be incorporated into the broader agenda for reforms, such as trade and financial liberalization, the fight against corruption, and public sector administration.

Suggested Citation

  • Morisset, Jacques & Lumenga Neso, Olivier, 2002. "Administrative barriers to foreign investment in developing countries," Policy Research Working Paper Series 2848, The World Bank.
  • Handle: RePEc:wbk:wbrwps:2848
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    References listed on IDEAS

    as
    1. Marianne Bertrand & Francis Kramarz, 2002. "Does Entry Regulation Hinder Job Creation? Evidence from the French Retail Industry," The Quarterly Journal of Economics, Oxford University Press, vol. 117(4), pages 1369-1413.
    2. Bai, Chong-en & Wei, Shang-Jin, 2001. "The quality of bureaucracy and capital account policies," Policy Research Working Paper Series 2575, The World Bank.
    3. Morisset, Jacques, 2000. "Foreign direct investment in Africa : policies also matter," Policy Research Working Paper Series 2481, The World Bank.
    4. Yingqi A. Wei & V. N. Balasubramanyam (ed.), 2004. "Foreign Direct Investment," Books, Edward Elgar Publishing, number 3169, April.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Cooray, Arusha & Tamazian, Artur & Vadlamannati, Krishna Chaitanya, 2014. "What drives FDI policy liberalization? An empirical investigation," Regional Science and Urban Economics, Elsevier, vol. 49(C), pages 179-189.
    2. Marcus H. Böhme & Sarah Kups, 2017. "The economic effects of labour immigration in developing countries: A literature review," OECD Development Centre Working Papers 335, OECD Publishing.
    3. Saglam, Bahar Bayraktar & Sayek, Selin, 2011. "MNEs and wages: The role of productivity spillovers and imperfect labor markets," Economic Modelling, Elsevier, vol. 28(6), pages 2736-2742.
    4. Straub, Stephane, 2008. "Opportunism, corruption and the multinational firm's mode of entry," Journal of International Economics, Elsevier, vol. 74(2), pages 245-263, March.
    5. Pal, Sarmistha, 2013. "Corruption, Networking and Foreign Ownership: Recent Evidence from CEE Countries," IZA Discussion Papers 7636, Institute for the Study of Labor (IZA).
    6. Jacopo Torriti & Eka Ikpe, 2015. "Administrative costs of regulation and foreign direct investment: the Standard Cost Model in non-OECD countries," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 151(1), pages 127-144, February.
    7. Pritha Mitra, 2010. "How Can Regional Public Expenditure Stimulate FDI in the Mekong?," Chapters,in: Globalization and Development in the Mekong Economies, chapter 5 Edward Elgar Publishing.
    8. Leonardo Becchetti & Nada Kobeissi, 2010. "Role of Governance and Institutional Environment in Affecting Cross Border M&As, Alliances and Project Financing: Evidence from Emerging Markets," CEIS Research Paper 156, Tor Vergata University, CEIS, revised 28 May 2010.
    9. Zhang, Qing & Ogus, Anthony, 2005. "Licensing Procedures in Developing Countries: Should They Be Part of the Set-up Process?," Centre on Regulation and Competition (CRC) Working papers 30671, University of Manchester, Institute for Development Policy and Management (IDPM).

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