einstitute.worldbank.org Improving City Competitiveness City Management and Business Climate April 12, 2012 | 10:00 AM EST Speaker: Stanley Nollen Professor, Georgetown University McDonough School of Business

What Do City Leaders Want for Their Residents? 2 Employment Quality of life Income

3 How Can City Leaders Get These Outcomes? o Attract investment We focus on foreign direct investment in emerging market economies - developed country economies behave somewhat differently - similar arguments apply for domestic investment We acknowledge potential downsides of foreign investment but do not discuss them here

What Motivates Business to Make Investments Abroad? o Reduce costs and build an export platform o Serve the domestic market 4

5 To Achieve These Objectives, Business Managers’ Decisions Depend on o Input supply conditions: prices, productivity, complementary inputs, clusters o Markets: size and functioning o Business/Investment climate: infrastructure, institutions, government, competitive landscape

What Experience Tells Us – 1 How Managers Make Foreign Direct Investment Decisions and Decide to Locate Production Abroad o Wage rate for labor is not the best indicator of attractiveness - do low wages mean low skill? - do low wages mean low productivity? - unit cost of production is what matters (wage ● labor input) / output 6 o Bigger and faster growing markets are important for all investment decisions, even those whose purpose is exporting

What Experience Tells Us – 1 (continued) How Managers Make Foreign Direct Investment Decisions and Decide to Locate Production Abroad o Clusters are important - other firms in the same industry or from the same country - informal networks for knowledge-sharing - expanded labor pool - better supply chain for inputs and distribution 7

What Experience Tells Us - 2 How Managers Make Foreign Direct Investment Decisions and Decide to Locate Production Abroad o Infrastructure is critical -what it is (roads, rails, ports, power, telecom, water) depends on the industry 8

o Government makes a difference - government policies (e.g., SEZs, industrial parks) - governance quality – services provided - regulation that is reasonable but not burdensome - financial incentives are not very effective - local government matters as well as central government 9 What Experience Tells Us – 2 ( continued) How Managers Make Foreign Direct Investment Decisions and Decide to Locate Production Abroad

Which Are the Most Competitive Cities … 10 RankCity In China 1Hangzhou 2Shanghai 3Guangzhou 4Shenzhen 5Chongqiang RankCity In Emerging Market Economies 1Singapore 2Hong Kong 3Seoul 4Taipei 5Shanghai RankCity Worldwide 1London 2New York 3Tokyo 4Chicago 5Paris Sources: China: Dollar et al 2003; Emerging Market Economies and Worldwide: Mastercard 2008

Which Are the Most Competitive Cities in China? It Depends on > Who Evaluates > Criteria Used 11 City Rank (Dollar Overall) Rank (Mastercard Emerging Markets) Rank (Mastercard Worldwide) Hangzhou110 too low to show Shanghai211 Guangzhou53 too low to show Shenzhen433 Chongqiang6125 Sources: China: Dollar et al 2003; Emerging Market Economies and Worldwide: Mastercard 2008

Which Countries Have the Best Business Climate? 12 Rank Top 10 Rank Top Emerging Market Economies 1 Singapore 2 New Zealand2 Hong Kong 3 Hong Kong3 Georgia 4 United States4 Thailand 5 United Kingdom5 Saudi Arabia 6 Denmark6 Mauritius 7 Ireland7 Korea (South) 8 Canada8 Bahrain 9 Australia9 Malaysia 10 Norway10 South Africa Source: World Bank, Doing Business 2009 China is 14 th among emerging market economies, 89 th worldwide

Lessons Learned What City Leaders Can Do to Improve Their City’s Competitiveness o A city’s competitiveness does not depend only on the country in which it is -City leaders have scope to make a difference o There is no single list of features that a city needs to be competitive -industries’ needs differ, so city strengths can differ -one city’s competitive strengths need not emulate another's -no city meets all the criteria for competitiveness … but o The short list of what is always important generally includes - good government - Infrastructure - Human capital - Functioning of markets and institutions 13