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growth diagnostic with employment focus

Explanation of major findings pilot inclusive growth diagnostic (2012)
by

Alice Brooks

on 10 December 2013

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Transcript of growth diagnostic with employment focus

Manifestation of Primary Problem in the DR
Growth with High Unemployment and Informality

Existing cost structure of businesses forces them to spend more on capital, less on jobs
Inefficient Provision of Electricity
Constraints to Inclusive Growth in the Dominican Republic
Authors:
Alice Brooks, USAID/LAC
Stu Callison, USAID/E3
Luis Gonzalez, USAID/Dominican Republic
Daniel Handel, USAID/Nicaragua
Contributing Authors:
Anastasia de Santos, USAID/E3
Claudia Gonzalez Martinez, Optimal Solutions Group
Sugarcane fields
Courtesy Inter-American Foundation
Source: World Bank/IFC Enterprise Survey, Dominican Republic Country Profile 2010
BINDING CONSTRAINT TO INCLUSIVE GROWTH
Purpose of the diagnostic
Harvard/HRV origins: Some obstacles to growth are
more binding
than others; sequencing reforms is a good idea.
USAID pilot extension
: The distribution of growth matters. Growth that includes the poor and other marginalized subgroups is our objective.
This diagnostic is a pilot
; similar studies are taking place in Indonesia, Kenya and Mozambique by USAID staff economists.
Informal firms hit a size ceiling - can't supply big markets and thus don't add jobs.
Over half of all businesses are informal, both by choice and necessity.
The burden of government bureaucracy and corruption is high and growing
Age Distribution of Formal Firms (2010)
Sequencing Matters

What to do first to improve the
Fiscal Deficit
?
Raise revenues, or
Improve quality of existing expenditures?

What to do first to improve
Education
?
Increase gov't spending, or
Improve quality of existing expenditures?
Ineffective Governance
BINDING CONSTRAINT TO INCLUSIVE GROWTH
The Corruption Perceptions Index ranks countries based on how corrupt their public sector is perceived to be.
The index is based on 13 independent surveys.
A country's score is on a scale of 0 - 10, where 0 means that a country is perceived as highly corrupt and 10 means that a country is perceived as very clean.
DR business owners and top managers in 360 formal (registered) firms were asked to choose the biggest obstacle to their business
How is the private sector reacting to the corruption and government ineffectiveness?
Education spending inefficiencies...
... and health care services inefficiencies...
High Informality
High Unemployment
Tiny informal firms
+ High Cost of Electricity
Ineffective Governance
In summary:
Microfirms with very few employees
Sources: (Unemployment) IMF Working Paper WP/11/252 (Gini) ECLAC 2011 "Statistical Yearbook for Latin America and the Caribbean"
Model used by MCC and for PFG
Electricity supply gap in the Dominican Republic
as cited in World Bank Policy Research Working Paper # 6049 (April 2012)
Losses in the DR include technical losses and widespread invoice non-payment.
Annual Electricity Sales and Distributional Electricity Losses, 2005
Source: World Bank, September 2010 "Meeting the Electricity Supply/Demand Balance in Latin America & the Caribbean"
Source: Loayza, Norman et al (2009) "Informality in Latin America and the Caribbean" World Bank Working Paper 4888
Estimating the Size of Informality is Difficult
Full transcript