November 22, 2010

Does efficient corruption pay?

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:

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November 15, 2010

Quantifying informality in Latin America

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.

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November 10, 2010

Regime Type: Do private firms have a preference?

One can reasonably expect that frequent and unpredictable changes in economic policy might adversely affect investment by the private sector and the overall growth of the economy. For all practical purposes, uncertainty about future economic policies is a step towards economic anarchy. But precisely what causes firms in some countries to have higher uncertainty about future economic policies than others? Does the underlying political structure matter? What elements of the political structure, if any, matter for the level of policy uncertainty as perceived by private agents?

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November 09, 2010

Looking for a place to invest?

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).

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November 05, 2010

Friday links

1. Take a tax diet, the Brazilian way.

2. The Economist's take on Doing Business 2011.

3. Thomas Friedman predicts India will be the next juggernaut of technological innovation. They could probably get there faster if they cut more red tape -- India ranks a sad 135 in the Doing Business 2011 report.

4. Bulgarian Finance Minister (and former Chief Economist of Finance and Private Sector Development at the World Bank) thinks the Fed's quantitative easing policies will backfire.

5. On the other hand, there's good news on the job front: the U.S. added 151,000 jobs in October, mostly in the private sector.

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November 03, 2010

Doing Business 2011: 8 years, 11 indicators, and a new 5-year cumulative score

DB2011 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.)

Db big

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October 29, 2010

Friday links

1. Output-Based Aid: Now with its own database and cool interactive map.

2. Bringing mobile phones to mobile (food cart) microentrepreneurs -- but will it make the food any tastier?

3. Capitalist prices vs. "fair" prices, Venezuela edition

4. Pro-poor tourism: Not a contradition in terms?

5. Newsflash: New findings that bureaucrats are humans too!

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October 28, 2010

Fantasy PSD

Footbal Is it the effect of the increasingly globalised football (soccer) industry? Or simply the guilty pleasure of winning prizes for daydreaming? I’ve recently noticed feverish interest in tables of player performance data as colleagues select and nurture their “Fantasy Football” teams. It made me wonder what a “Fantasy PSD” team would look like if players (development ideas) could be selected in similar way across the whole of the league (development industry). So here is my take on what a Fantasy PSD team would look like.

Attack: a proven ability to score goals (development results) coupled with pace and positional awareness

We’ve come to rely on Doing Business over the years. His direct approach is controversial but certainly gets the fans’ attention. Perhaps because of the controversy he is a bit of a media darling. And now with his new supermodel girlfriend Investing Across Borders he will be a hard player to replace. I’ll be putting microfinance on the bench for the time being. He was terrific a few seasons ago but ever since last year’s incident with randomized controlled trials (RCTs) he hasn’t been the same player.

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October 22, 2010

Friday links

1. Keynes vs. RCTs: Should we randomize stimulus spending?

2. Replicating research results: a (very important) task only a mathematician could love

3. Apps for Development: $15k for the top entrant

4. More than 1 in 5 people lack access to electricity...but not everyone agrees on how to fix the problem.

5. Didn't make it to Washington, DC for the World Bank/IMF Annual Meetings? Don't worry, we've got plenty more international confabs: Law, Justice and Development Week, November 8-12.

6. The mesofinance gap...no, it doesn't have anything to do with prehistoric bankers.

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October 13, 2010

Making the case for microsavings

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.

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