Impact Evaluation 4 Peace March 2014, Lisbon, Portugal 1 Investment Climate Reforms and Job Creation: Need for More Rigorous Impact Evaluation Aminur Rahman Latin America and the Caribbean’s Citizen Security Team

Why Job? More than a decade ago, 60,000 poor people said that jobs and entrepreneurship are the most important channels for escaping poverty. Jim Clifton, Chainman & CEO of Gallup What Would Fix the World? - Jobs as more than 75 years of Gallup Polling suggest.

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? 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 Size of the Shadow Economy per country (Informality weighted by total GDP 2005) 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 Source: Based on 14 country survey of Informal Firms, World Bank Group

And Bangladesh Appears to be No Different

8 The Office of Registrar Joint Stock Companies and Firms (RJSC) …. Prior to Reform ….

9

10 And today…a fully functioning online system and a pioneering agency to implement Digital Bangladesh vision

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