Investment Climate and the Microeconomics of Growth

The research aims to understand the firm-level behavior underlying aggregate investment, employment, productivity, and growth. Understanding the incentives and constraints facing individual actors provides insights into the efficacy of different growth strategies and helps explain the heterogeneous responses to policies. The approach also highlights the distributional impact of the investment climate in which firms operate and the relative contributions of different types of firms to aggregate performance. Research covers two broad areas:

• Investment climate looks at how regulations, access to finance and infrastructure, governance and property rights explain firms’ growth, productivity, innovation and investment. Research also examines the distributional impact of investment climate conditions across types of firms (e.g. by size, age, or sector). Much of this work exploits the Enterprise Surveys collected by the World Bank, now covering over 70,000 firms in 100 countries (www.enterprisesurveys.org). Now that panel data is available, work is being done to evaluate how reforms affect changes in performance, which policy areas matter most for growth, and the implications for the prioritization and sequencing of reforms.
• Microeconomics of growth focuses on the microeconomic dynamics underlying macroeconomic performance. Evidence shows that productivity gains account for the bulk of long-term growth in per capita income. Economywide productivity growth reflects entry, exit and the reallocation of existing and new resources across microeconomic units of heterogeneous efficiency. Research examines the scope, speed and efficiency of resource reallocation across the economy, and assesses policies and other factors shaping them.