Buying and selling a product or service involves a number of costs, including time spent searching for the best prices, negotiating for good discounts, researching product quality and writing contracts where applicable. Broadly, these are called the transaction costs of economic exchange, and part of the reason firms exist is to keep transaction costs at a minimum.
Recently, I came across an interesting paper by Fisman and Gatti which suggests that bribery also involves a transaction costs—it takes time to negotiate a bribe rate and the terms of the favor to be done, e.g. the number of regulations to be avoided. The interesting point here is that if a transaction cost is indeed present, then the greater the number of regulations a firm would like to avoid, the more time negotiations require. Further, we can expect the bribe amount to increase too with the number of regulations the firm wants to avoid. Now putting these results together gives us a couple of testable hypotheses:
Continue reading "Does efficient corruption pay?" »
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In a series of earlier posts, I discussed a number of findings about informal (unregistered) firms in 6 African countries, including Burkina Faso, Cote d’Ivoire, Cape Verde, Cameroon, Madagascar and Mauritius. These findings were based on Informality Surveys collected by the Enterprise Analysis Unit to better understand the functioning of the informal sector—a large sector for which we have virtually no systematic data. Recent estimates suggest that for the world as a whole, between 22.5 and 34.5 percent of all economic activity occurs in the informal economy; for countries in the lowest quartile of GDP per capita, the estimates range between 29 and 57 percent (La Porta and Shleifer, 2008).
The Informality Surveys have now been expanded beyond Africa, covering the Latin American countries of Argentina and Peru. For data junkies like me, this is exciting for at least three reasons. First, comparing Africa and Latin America and the Caribbean (LAC) provides insights into how the structure, conduct and performance of informal businesses vary with the level of economic development. Of course, region-specific factors other than the level of economic development that may affect informal firms will need to be carefully weeded out.
Continue reading "Quantifying informality in Latin America" »
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Survey data suggest it might not be that easy for manufacturing multinationals to find information on suitable industrial investment sites in many countries around the world.
It will probably come as no surprise that FDI in the manufacturing sector is in decline. According to UNCTAD, the services and primary sectors continue to capture an increasing share of FDI as the years pass. Despite these trends, manufacturing still represents somewhere between 30 to 45% of total cross-border FDI inflows annually, and there have been more than 3,000 new manufacturing investment projects annually over the last decade.
Which raises the practical question: How do companies and their advisors locate suitable investment locations for their manufacturing projects when considering entry in new markets? The World Bank Group’s Investing Across Borders database suggests that it might not be that easy in most countries around the world. The database's index on Access to land information compares countries on the ease of access to land-related information through the countries’ land administration systems, including land registries, cadastres and land information systems and finds that globally of the 87 countries surveyed the average score is relatively low 41.4 out of 100 (Figure 1 below the jump; click on the image for a larger version).
Continue reading "Looking for a place to invest?" »
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The new Doing Business 2011: Making a Difference for Entrepreneurs report has just been published, the 8th in the Doing Business series. Let me quickly dispense with the most-watched metric, the 10 economies that have improved the most on the overall Ease of Doing Business index during the last year. This year it's Kazakhstan, Rwanda, Peru, Vietnam, Cape Verde, Tajikistan, Zambia, Hungary, Grenada, and Brunei Darussalam.
Of course, whether an economy manages to pull off a series of regulatory reforms in a single year requires a bit of luck. While policymakers can often cut the days to open a business with relative ease, it's rather more difficult (and more time consuming), say, to increase the percentage of the population covered by a credit bureau. So I was pleased to see that the Doing Business team has drawn on their longitudinal dataset to construct a measure of cumulative change for the past 5 years—the "DB change score". (Click on the figure below to see a bigger version.)
Continue reading "Doing Business 2011: 8 years, 11 indicators, and a new 5-year cumulative score" »
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Editor's Note: Jeanette Thomas is a Communications Manager at CGAP.
It’s never been too difficult to make the case for what savings can do for poor people. Stuart Rutherford’s work with SafeSave nailed that one fairly convincingly some years back. Since then, MicroSave and many others such as Women’s World Banking and the Portfolios of the Poor project have reinforced the message time and again: low-income clients see considerable consumption-smoothing benefits from savings.
But what’s always been much harder is convincing microfinance institutions that savings make good business sense. So news from a research study released last week is highly welcome. CGAP researchers Glenn Westley and Xavier Martin Palomas had full access to the 2008 books of two institutions offering savings—ADOPEM in the Dominican Republic, and Centenary Bank in Uganda.
Continue reading "Making the case for microsavings" »
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