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Direct support to private firms - evidence on effectiveness

  • Batra, Geeta
  • Mahmood, Syed
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    Governments use a variety of instruments to provide direct support to private enterprises. These include the provision of finance (subsidized and/or directed credit) and business development services (management and marketing advice to small businesses, agricultural extension services, support for enterprise level training and support to technology development). These interventions are distinct from those that support enterprises indirectly by establishing a policy and legal environment conducive to enterprise development. How effective have these direct support schemes been? This paper attempts to provide some answers to this question by surveying the available literature on the effectiveness of direct support interventions. Where available, impact evaluations suggest that the performance has been mixed at best. The evidence indicates that active intervention does not work unless the basic environment for private sector development is sound. Public policy thus needs to focus on creating an enabling environment, key elements of which include a sound legal and judicial system which supports low-cost contract enforcement, good infrastructure, a policy playing field which is level in terms of ease of registration, taxes and investment incentives for all enterprises-large and small, domestic and foreign.

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    Paper provided by The World Bank in its series Policy Research Working Paper Series with number 3170.

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    Date of creation: 30 Nov 2003
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    Handle: RePEc:wbk:wbrwps:3170
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    1. Demirguc-Kunt, Asli & Maksimovic, Vojislav, 1996. "Financial constraints, uses of funds, and firm growth : an international comparison," Policy Research Working Paper Series 1671, The World Bank.
    2. Zaman, Hassan, 1999. "Assessing the impact of micro-credit on poverty and vulnerability in Bangladesh," Policy Research Working Paper Series 2145, The World Bank.
    3. Jonathan Morduch, 1999. "The Microfinance Promise," Journal of Economic Literature, American Economic Association, vol. 37(4), pages 1569-1614, December.
    4. Anderson, Jock R. & Feder, Gershon, 2007. "Agricultural Extension," Handbook of Agricultural Economics, Elsevier.
    5. Dar, Amit & Tzannatos, Zafiris, 1999. "Active labor market programs: a review of the evidence from evaluations," Social Protection Discussion Papers 20116, The World Bank.
    6. Keesing, Donald B. & Singer, Andrew, 1990. "Development assistance gone wrong : why support services have failed to expand exports," Policy Research Working Paper Series 543, The World Bank.
    7. Greenwald, Bruce C & Stiglitz, Joseph E, 1986. "Externalities in Economies with Imperfect Information and Incomplete Markets," The Quarterly Journal of Economics, MIT Press, vol. 101(2), pages 229-64, May.
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