December 11, 2009
After reviewing recent literature on the relationship between restrictive regulation, corruption and business environment reforms, the World Bank’s Investment Climate Department (CIC) found that corruption is positively correlated with restrictive regulation.
Using databases of investment climate reforms and corruption, the figure below shows a significant positive correlation between corruption and the number of procedures required to start a business in 183 countries.
Figure 2A below shows that “for a given number of procedures, the number of days to start a business is positively correlated with corruption.”
Figure 2B below shows that “the greater the number of documents needed to import and export, the higher the corruption rank, even after accounting for the number of procedures to start a business.”
According to the CIC, a 25-day reduction in the number of days required to start a business “improves the control of corruption ranking by about 1 point. If the number of days to import and export is reduced by 25, the control of corruption ranking increases by 4.4 points.”
November 22, 2009
How do labor regulations effect a dual labor market economy? Rita Almeida and Pedro Carneiro from the World Bank study this question in their new working paper, ‘Mandated benefits, employment, and inequality in a dual economy.’
This paper studies the effect of enforcing labor regulation in an economy with a dual labor market. The analysis uses data from Brazil, a country with a large informal sector and strict labor law, where enforcement affects mainly the degree of compliance with mandated benefits (severance pay and health and safety conditions) in the formal sector, and the registration of informal workers. The authors find that stricter enforcement leads to higher unemployment but lower income inequality. They also show that, at the top of the formal wage distribution, workers bear the cost of mandated benefits by receiving lower wages. Wage rigidity (due, say, to the minimum wage) prevents this downward adjustment at the bottom of the income distribution. As a result, formal sector jobs at the bottom of the wage distribution become more attractive, inducing the low-skilled self-employed to search for formal jobs.
October 27, 2009
From the World Bank’s PSD Blog:
Data on informal firms in Ivory Coast, Madagascar and Mauritius show that these firms are larger in terms of total sales and also generate more output per worker. They rely less on physical infrastructure and machines, but more on human capital of the manager. The latter is especially true in smaller cities and among male-owned and those that were started because the owner could not find a satisfactory job.
September 20, 2009
From the Associated Press:
The world’s major powers are repeatedly breaking their pledges not to erect trade barriers, and there’s no sign the “protectionist juggernaut” will ease as countries recover from the global downturn, an influential monitoring organization said Friday.
Since first taking a no-protectionism vow at a summit meeting last November, the world’s 20 major economies have been responsible for as many as 121 “blatantly protectionist” measures, with 134 more in the pipeline, said Global Trade Alert, a monitoring service overseen by the London-based Centre for Economic Policy Research and supported by the World Bank and other international organizations.
The findings, bound to come up at next week’s Group of 20 summit in Pittsburgh, follow a report earlier in the week by the Geneva-based World Trade Organization that cited “continued slippage toward more trade restricting and distorting policies” by the U.S. and its major trading partners.
“The real economy may now be shrinking at a slower rate, and a recovery may be in view, but unemployment will continue to rise for some time to come. Pressures to protect jobs at home will grow and governments will find these pressures difficult to resist,” said the new report.
“The protectionist juggernaut shows no sign of slowing down,” it said.
September 12, 2009
Freakonomics points to a great article from the Economist that suggests that Capitalism is thriving. According to the World Bank’s annual Doing Business report, “which tracks changes to the regulations that affect business”:
In the year since June 2008, 131 countries introduced 287 pro-business reforms—20% more than in the previous 12 months and more than in any year since the World Bank started the survey in 2004.
Low and lower-middle income economies accounted for two-thirds of the action, with Rwanda turning out to be the world’s champion reformer—the first time a sub-Saharan country has claimed the prize. Eastern European and Central Asian countries were the most energetic reformers by region for the sixth year in a row (26 out of 27 governments there introduced reforms). Middle Eastern and North African countries were not far behind (17 out of 19 countries), and 17 high-income countries also spruced up their business regulations.
Of significance, the article also notes that,
…in poor countries, a ten-day reduction in the time it takes to start a business can lead to an increase of 0.4 percentage points in GDP growth. Another shows that people who have a formal title to their property invest as much as 47% more in their businesses.
August 22, 2009
Tim Harford from the Financial Times writes,
Imagine that your daily earnings were less than the price of this newspaper. Would you consider buying private education and private healthcare?
Before you make up your mind, here are a few considerations: government healthcare and primary education are free; the private-sector doctors are ignorant quacks and the teachers are poorly qualified; the private schools are cramped and often illegal. It doesn’t sound like a tough decision. Yet millions of very poor people around the world are taking the private-sector option. And, when you look a little closer at the choice, it’s not so hard to see why.
Take the doctors of Delhi, who were studied carefully by two World Bank researchers, Jishnu Das and Jeffrey Hammer. These doctors are busy people – the average household visits a doctor every two weeks, and the poor are particularly likely to visit. And, surprisingly, three-quarters of those visits are to private practitioners – despite the fact that public-sector doctors are better qualified. Why?
Click here to continue reading.
July 30, 2009
In a 2008 World Bank report, Shaohua Chen and Martin Ravallion write,
Yet the data also provide robust evidence of continually declining poverty incidence and depth since the early 1980s. For 2005 we estimate that 1.4 billion people, or one quarter of the population of the developing world, lived below our international line of $1.25 a day in 2005 prices; 25 years earlier there were 1.9 billion poor, or one half of the population. Progress was uneven across regions. The poverty rate in East Asia fell from almost 80 percent to under 20 percent over this period. By contrast it stayed at around 50 percent in Sub-Saharan Africa, though with signs of progress since the mid 1990s.