The Investment Climate Around the World The Investment Climate Around the World Voices of the Firms from the World Voices of the Firms from the World Business Environment Survey Business Environment Survey (original) (raw)

Does the Investment Climate Matter?

2008

This series was created in 2003 to promote debate, disseminate information and analysis, and convey the excitement and complexity of the most topical issues in economic and social development in Latin America and the Caribbean. It is sponsored by the Inter-American Development Bank, the United Nations Economic Commission for Latin America and the Caribbean, and the World Bank. The manuscripts chosen for publication represent the highest quality in each institution's research and activity output and have been selected for their relevance to the academic community, policy makers, researchers, and interested readers.

The Investment Climate, Growth, and Poverty

A Better Investment Climate for Everyone, 2004

The findings, interpretations, and conclusions expressed herein are those of the author(s) and do not necessarily reflect the views of the Executive Directors of the International Bank for Reconstruction and Development / The World Bank or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work. The boundaries, colors, denominations, and other information shown on any map in this work do not imply any judgment on the part of the World Bank of the legal status of any territory or the endorsement or acceptance of such boundaries. Rights and Permissions Copying and/or transmitting portions or all of this work without permission may be a violation of applicable law. The World Bank encourages dissemination of its work and will normally grant permission promptly.

Measuring Inter-State Differences in Investment Climate

The Twelfth Finance Commission, 2004

This study has been conducted by Indicus Analytics for The Twelfth Finance Commission of India. It seeks to measure the investment climate prevalent in 1996 and 2001 in 28 states of India. The objective is to ascertain the investment climate or attractiveness of the states of India as investment destinations, how this has changed over time and how each state compares with the other. As mentioned, the objective is to capture how the states of India are on their overall investment climate and attractiveness vis-à-vis each other and how this has been changing over time. This comparative aspect involves the creation of indices that (i) allows us to compare states, (ii) capture changes over time, and (iii) enable a discussion on the strengths and weaknesses of different states. Another aspect deserves mention. A large range of factors affect investment decisions many of these factors can be measured using secondary data, but for many secondary data are not available. Some examples of such qualitative factors include responsiveness of the government functionaries to business, ease and simplicity of procedures, etc. For such aspects, a primary survey was also conducted in key states Why are both primary and secondary sources of data important? For one, investment is affected by many factors ranging from good labour relations to good quality of infrastructure. For some of these aspects (such as quality of roads for instance) secondary data is not available, neither are good proxies available. A primary survey of entrepreneurs and managers is thus resorted to. On the other hand, secondary data from credible sources can provide good economy-wide estimates of certain important factors such as the overall economic environment, etc.

Investment Climate Constraints in Fragile and Conflict Affected States

The investment climate can be understood as the set of factors in a given location that shape firms’ incentives and opportunities to invest, grow and create jobs. Some of these factors are costs; others are risks; still others are the competitive forces in the economy. Together, they determine the vibrancy and reach of private sector firms in the economy. A strong investment climate is not a serendipitous occurrence: it is the result of country authorities formulating, implementing and enforcing an appropriate set of policies. There is profound disagreement as to which social, political or economic factors have prevented the development of a strong investment climate. The World Bank, for example, asserts that a good investment climate is not just about generating profits for firms but also about improving outcomes for society including through its impact on job creation, lower prices, and broadening the tax base. Significantly, it is difficult to make generalisations about what constitutes a strong investment climate. Changes to the investment climate may be favourable or unfavourable depending on the firm, the sector, and the investor in question.

Indicators for investment and business climate

There are many indicators available that can be used to indicate improvements in the business environment. Some indicators focus on the microeconomic, business-focused factors, while others concentrate on the macroeconomic and policy factors. In addition to indicators with an explicit focus on business and investment climate, there are also indicators, such as governance and corruption indicators, which can provide information on factors which are likely to impact business climate, but may be overlooked by standard indicators. In general, no single approach is better than the others and it is not feasible to develop a methodology that could generate all the information needed for all types of investment climate policy analyses. When looking at specific indicators, it is important to assess how well the indicator lends itself to analysis across different time periods. Several indicators were primarily designed to allow cross-country comparison, and consequently, work poorly when comparing different time periods. It is also important that indicators fully capture all relevant factors. Many business climate indicators overlook social and political risk, which are factors especially pertinent in fragile and conflict-affected states. In general, the World Bank Doing Business index seems to be the most widely used and well regarded index of business climate. The index includes a ranking which provides comparisons across different countries, though some have criticised this ranking as being largely inaccurate. Focus is on laws and regulations; a more comprehensive picture may be provided through indicators such as the World Bank Enterprise Surveys which are based on firm experiences. For a quick overall picture of business investment climate, most suitable tools might be the World Bank Business Environment Snapshots or the ACP/ECOWAS BizClim. It may also be worth designing a unique tool that aggregates data from different indicators tailored to a specific policy or programming objective.