Performance of Manufacturing Firms in Africa: An Empirical Analysis sheds light on the characteristics of formal and informal manufacturing firms in Africa by comparing these firms with firms in other regions. Drawing on two data sources, the authors find that there is a very low share of manufacturing in GDP in Africa and in African exports. Most African manufacturing firms are informal, perhaps because the enforcement of registration and licensing regulations is not strict. These firms are also smaller than firms in other regions and few export. Labor productivity is low in Africa relative to other regions, but this may be because of the more challenging environment with the lack of physical infrastructure, the heavy burden of business regulation, and other issues. However, after accounting for these differences, the authors find that firms in Sub-Saharan Africa appear more, not less, productive than firms elsewhere. This analysis suggests that improving the business environment might allow firms to enhance their performance. However, given the pervasive distortions in the business environment and the limited resources at the disposal of most African countries, Africa cannot and should not wait until the business environment becomes healthier before growing a more viable manufacturing sector. Performance of Manufacturing Firms in Africa: An Empirical Analysis shows that binding constraints vary by country, by sector, and by firm size. Therefore, countries should identify the constraints in the most promising sectors and adopt policies designed specifically to remove these constraints. The evidence in this book overwhelmingly dispels the false notion of Africa s inability to compete globally in manufacturing goods. This book will be of interest to economists, policy makers, and government officials working to improve manufacturing firm performance in Africa.
Using a large panel dataset of Chinese industrial firms, the authors examine the determinants of access to loans from formal financial intermediaries and extension of trade credit. Poorly performing state-owned enterprises were more likely to redistribute credit to firms with less privileged access to loans through trade credit, a pattern consistent with some of the extension of trade credit being involuntary. By contrast, profitable private domestic firms were more likely to extend trade credit than unprofitable ones. Trade credit likely provided a substitute for loans for these private firms' customers that were shut out of formal credit markets. As biases in lending became less severe, the amount of trade credit extended by private firms declined.
Political incentives appear to affect the likelihood of privatization. Provinces in Argentina whose governors belonged to a fiscally conservative party were more likely to privatize, and fiscal and economic crises increased the likelihood of privatization. Clarke and Cull study the political economy of bank privatization in Argentina. The results of their study strongly support the hypothesis that political incentives affect the likelihood of privatization. They find that: * Provinces whose governors belonged to the fiscally conservative Partido Justicialista were more likely to privatize. * Fiscal and economic crises increased the likelihood of privatization. * Poorly performing banks were more likely to be privatized. They tested the hypotheses for a specific industry in a specific country, making it possible to control for enterprise performance and institutional characteristics. It seems reasonable to expect that similar results might hold in other industries and countries. This paper-a product of the Development Research Group-is part of a larger effort in the group to investigate the determinants of structural change in development countries' banking sectors. The authors may be contacted at firstname.lastname@example.org or email@example.com.
August 1999 Argentina's recently privatized provincial banks generate much of their income through service contracts with the provinces, and the transition to commercial banking has been challenging. Available evidence suggests improvements in post-privatization performance, but it is uncertain whether these are sustainable. At the very least, however, a fiscal burden has been lifted from the provinces. Argentina's provinces offer a unique opportunity to study bank privatization because so many transactions took place there in so short a period in the 1990s (1994-98). As the decade started, every province owned at least one bank, performance in publicly owned provincial banks was substantially worse than in private banks, and the losses incurred imposed substantial fiscal costs on the provinces. Politicians whose provinces were in dire fiscal straits, their banks losing money at a fast rate, were most willing to seize opportunities to privatize, even though overstaffed provincial banks were harder to privatize. Deposit loss and liquidity problems associated with the Tequila crisis made privatization more likely. The right political situation is necessary but not sufficient to ensure good privati-zations. First, one must find a buyer, and Argentina's provincial banks were the least attractive in the banking sector. So the provinces settled for purchasers that were not first-tier banks. Many of them were small wholesale banks that had to make the difficult transition to retail banking. Three important concessions were made to purchasers: contracts to provide post-privati-zation services to the provinces, portfolio guarantees, and the assumption of only good assets. In return, provincial politicians were granted restrictions on branch closings and layoffs of bank employees. Both types of accommodation were costly to the purchasers and the provinces. These transactions probably could not have been completed without long-term loans from the Fondo Fiduciario. Were the Fondo Fiduciario loan funds put to good use? Did privatization leave provincial banking on a sounder footing? Initial indications are that the situation has improved in most provinces. And the provinces experiencing post-privatization difficulties tend not to have participated fully in the Fondo Fiduciario privatization program. But the privatized banks rely on their service contracts with provinces to generate a big share of their income and are having trouble making the transition to commercial banking. It is uncertain whether the newly created banks are sustainable. But at least a fiscal burden has been lifted from the provinces. This paper - a product of Regulation and Competition Policy and Finance, Development Research Group - is part of a larger effort in the group to investigate the determinants of structural change in developing countries' banking sectors. The authors may be contacted at firstname.lastname@example.org or email@example.com.
That Lima's water system was in near-crisis was not enough to bring about radical change. Partial reforms to reduce many of the city's worst problems were carried out under public management. But a quarter of Lima's citizens still had no access to water or sewerage connections, extended service interruptions were common and more than a third of the scarce water supply was wasted. Why did the push for privatized water and sanitation fall?
The importance of a country's "investment climate" for economic growth has recently received much attention. Hallward-Driemeier, Wallsten, and Xu address the general lack of appropriate data for measuring the investment climate and its effects. The authors use a new survey of 1,500 Chinese enterprises in five cities to more precisely define and measure components of the investment climate, highlight the importance of firm-level data for rigorous analysis of the investment climate, and investigate empirically the effects of this comprehensive set of measures on firm performance in China. Overall, their firm-level analysis reveals that the main determinants of firm performance in China are international integration, entry and exit, labor market issues, technology use, and access to external finance. This paper--a product of Investment Climate, Development Research Group--is part of a larger effort in the group to understand the investment climate using firm-level datasets.
May 1998 On average, performance contracts do not improve productivity in China's state enterprises and may even reduce it. But when they contain all the right features-managerial bonds, profit orientation, higher wage elasticity, and lower markup ratios-performance contracts can boost a firm's productivity growth rate by an estimated 10 percent. Performance contracts are widely used to reform state-owned enterprises. By June 1994, there were 565 such contracts in 32 developing countries, used principally to reform large utilities and other monopolies, and roughly another 103,000 in China, where they are also used to reform state manufacturing enterprises. A performance contract is a written agreement between the manager of a state enterprise (who promises to achieve specific targets in a certain time frame) and government (which-usually-promises to award achievement with a bonus or other incentive). Performance contracts are a variant of the pay-for-performance or incentive contracts often used to motivate managers in the private sector. In the public sector, they are viewed as a device to reveal information and motivate managers to exert effort. Shirley and Xu analyze China's experience with performance contracts in more than 400 state enterprises. China is a good place for such a study because no country has ever used them on such a scale or with such a variety of enterprises (mostly in the competitive sector). China also uses many different kinds of contracts, with different targets (more profit-, tax-, or output-oriented). Shirley and Xu find that performance contracts * On average, do not improve productivity in China's state enterprises and may even reduce it. * Are ineffective in competitive firms as well as monopolies. * Do more harm when they provide only weak incentives and when they do not reduce information asymmetry. They find no connection between variables for commitment and the effects of performance contracts. Design matters. When performance contracts contain all the good features-profit orientation, higher wage elasticity, and lower markup ratios-the firm's productivity growth rate could increase as much as 10 percent. The Chinese government was serious about implementing performance contracts, and used measures considerably more radical than other countries used, hailing the contract system as the official national mode for reforming state enterprises. But most of the contracts have had little or no effect on growth rates and the observed frequency of contracts with good provisions is exceedingly low. Perhaps the political economy of incentive contracts in government settings merits further study. Political considerations may preclude the design of incentive contracts for government actors that could produce the sort of productivity gains some private firms have achieved. One observer (Byrd 1991) points out that the central government gave local governments a good deal of discretion in implementing performance contracts and local governments had a tendency to adopt the lowest common denominator, a bare-bones performance contract. This paper-a product of the Development Research Group-is part of a larger effort in the group to understand state enterprises. The authors may be contacted at firstname.lastname@example.org or email@example.com.
If the Internet made it easier for firms to enter new markets by reducing communication and search costs, then it may also have made it easier to export goods and services. Clarke and Wallsten find that higher Internet penetration in developing countries is correlated with greater exports to industrial countries, but not with trade between developing countries or with exports from industrial countries. Interpreting the correlations is difficult because causation may run from Internet use to exports or from trade openness to Internet use. To test whether Internet use affects export behavior, the authors endogenize Internet use by using countries' regulation of data services and Internet provision as instrumental variables. The results are robust to endogenizing Internet penetration, suggesting that access to the Internet does affect the export performance of firms in developing countries. In other words, Internet access appears to stimulate exports from poor countries to rich countries. Moreover, the analysis suggests that regulatory policies affecting telecommunications and Internet development indirectly affect trade, further emphasizing the importance of deregulating potentially competitive services in the telecommunications industry. This paper--a product of Investment Climate, Development Research Group--is part of a larger effort in the group to understand regulatory infrastructure sector reforms.
The Asian Development Review is a professional journal for disseminating the results of economic and development research carried out by staff and resource persons of the Asian Development Bank (ADB). The Review seeks high-quality papers with relevance to policy issues and operational matters done in an empirically-rigorous way. Articles are intended for readership among economists and social scientists in government, private sector, academia, and international organizations. In this issue---Taking Institutions Seriously: Rethinking the Political Economy of Development in the Philippines; Effects of Taxation on Migration: Some Evidence for the ASEAN and APEC Economies; National IQ and National Productivity: The Hive Mind Across Asia; Market Integration in the People's Republic of China; Collective Action, Political Parties, and Pro-Development Public Policy; Infrastructure and Growth in Developing Asia.