Investment Climate Reforms and
Job Creation: Need for More
Rigorous Impact Evaluation
Latin America and the
Caribbean’s Citizen Security
Team
Aminur Rahman
Impact Evaluation 4 Peace
24-27 March 2014, Lisbon, Portugal
1
Why Job?
Jim Clifton, Chainman & CEO of
Gallup
What Would Fix the World?
- Jobs as more than 75 years of
Gallup Polling suggest.
More than a decade
ago, 60,000 poor
people said that jobs
and
entrepreneurship are
the most important
channels for
escaping poverty.
Job Challenge is Huge
200 million
unemployed.
Additional 600
million jobs are
needed by 2020.
Private Sector has a Critical Role to Play- 9 out of 10
Jobs are created by Private Sector
• 9 out of 10 jobs are created by the private
sector
Informality: Why It Matters?
Size of the Shadow Economy per country
(Informality weighted by total GDP 2005)
• Informality
=
• 60% of official GDP
(Schneider and Buehn
2009)
• 60% of the labor force (ILO
and WTO, 2009)
• 60-80% of the MSMEs (IFC
and Mckinsey Database
2011).
• Poverty and low GDP per
capita
• Low productivity, low
quality, poor wages
• Low revenue base
Based on Schneider et at, 2009
The Mantra in the IC World
• De Sotto paradigm- high compliance cost is the key determinant of
informality
• Informality Surveys - businesses are informal as they do not know how to
formalize
• So, reducing the compliance burden and communicating about that reform
sounds like a great recipe for formalization
45.0
Source: Based on 14 country survey of
Informal Firms, World Bank Group
40.0
35.0
% of Firms
30.0
25.0
20.0
15.0
10.0
5.0
0.0
Getting
information
Time to
Complete
Registration
Taxes on
registered
business
There is no
perceived
benefits
Fees to complete
registration
And Bangladesh Appears to be No
Different
80
60
Additional money
needs to be spent for
registration
62
63
Govt. officials don't
come frequently asking
for bribe
40
20
Complicated business
registration rules,
systems
14
20
24
0
It is better for my business to be registered with the
RJSC and conduct business formally
It is better for my business not to be registered and
conduct business informally
Don't have problem
getting bank loan
3
0
20
40
60
80
The Office of Registrar Joint Stock
Companies and Firms (RJSC) …. Prior
to Reform ….
8
9
And today…a fully functioning online
system and a pioneering agency to
implement Digital Bangladesh vision
10
Results of the Reforms: Before - After
• One of the top reformers in Doing Business
• 113% increase in registered businesses
• 685% increase in revenue from Registration
What about Firm Formalization*?
We implemented a RCT based information
campaign for informal firms in 2 waves on how to
register and on the potential benefits of
registration
* Giacomo De Giorgi and Aminur Rahman, “SME’s registration:
Evidence from an RCT in Bangladesh.” Economics Letters, 2013
Results
• Overall very few firms register with no differential effects
between treated and controls
• While treated firms seem to know (significantly) more
about the registration process
• Similar evidence is also found elsewhere
• Regulatory Simplification alone may not make a dent:
- ongoing work in Guinea and Benin to test different
formalization interventions
- more research needed to identify determinants of MSME
growth, productivity, and job creation
Also, Only a Handful of Evidence on Job Creation…
• Investment climate reforms include reforms of:
–
–
–
–
–
–
Business entry
Licenses and permits
Tax
Customs
Investment policy
Incentives
• But we only have limited rigorous evaluation so far focusing
primarily on business entry
To Conclude…
• Job challenge is huge
• Arguably, investment climate reforms have a critical
role to play
• But to date, we only have limited rigorous evaluation
on a narrow set of IC reforms (primarily business
entry reforms)
• More rigorous evaluations are needed on a broader
range of IC interventions to understand –
– what works and what not to promote jobs in our client
countries