Productivity and Investment Climate in Developing Countries: How Do MENA Industries Perform?

Tidiane Kinda, Patrick Plane and Marie-Ange Véganzonès

No 476, Working Papers from Economic Research Forum

Abstract: This paper investigates the relationship between firm-level productivity and investment climate (IC) for a large number of countries (23) and manufacturing industries (8). We first propose three measures of firms’ productive performances: Labor Productivity (LP), Total Factor Productivity (TFP), and Technical Efficiency (TE). We reveal that enterprises in MENA perform poorly on average, compared to other countries of the sample. The exception is Morocco, whose various measures of firm-level productivity rank close to the ones of the most productive countries. We show at the same time that firms’ competitiveness in MENA is handicapped by high unit labor cost, compared to main competitors like China and India. The empirical analysis also reveals that the investment climate matters for firms’ productive performances. This is true (depending on the industry) for the quality of a large set of infrastructures, the experience and level of education of the labor force, the cost and access to financing, as well as to a lower extent, different dimensions of the government-business relation. These findings bear important policy implication by showing which dimension of the investment climate could help manufacturing firms in MENA to become more competitive on the world market.

Pages: 36 pages
Date: 2009-03, Revised 2009-03
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