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2. Introduction. Paper is result of two year project carried out in CNEM, LBS under Saul Estrin's directionCase studies in entry of new firms in the BRIC countries Focus is relationship between creation of new firms and institutions in various formsFramework that evolved for this paper was: coll
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1. 1 Paper drawn from bigger project on entry and institutions. Looking specifically at entry rates across four large significant emerging markets and teasing out relationship between institutions and entry. Run at CNEM at LBS 2003-2005. Individual papers coming out in special issue of Economic SystemsPaper drawn from bigger project on entry and institutions. Looking specifically at entry rates across four large significant emerging markets and teasing out relationship between institutions and entry. Run at CNEM at LBS 2003-2005. Individual papers coming out in special issue of Economic Systems
2. 2 Introduction Paper is result of two year project carried out in CNEM, LBS under Saul Estrin’s direction
Case studies in entry of new firms in the BRIC countries
Focus is relationship between creation of new firms and institutions in various forms
Framework that evolved for this paper was:
collection and comparison of data on actual entry rates,
taking as benchmark studies on formal institutions’ effects on entry
accumulation of material on informal institutions and their interaction with formal institutions – across dimensions of a) property rights and contracting, b) regulation and esp. labour regulation c) access to finance and credit d) infrastructure
Assessing through this framework how formal/informal interaction has affected entry rates
3. 3
4. 4 Difficulties in measuring institutions – very little quantified in terms of which institutions are important and when –
Divide between those studies that basically see institutions as market-augmenting structures, guaranteeing clear enforceable property rights, keeping transaction costs low and reducing threat of coercion; the other approach emphasise institutions that affect governance of nation – creating incentives determining whether government uses its power to create framework for productive economic activity or to redistribute wealth to itself or to its supporters ie emphasis on corruption and effects of corruption
Quantification done: using easily observable characteristics and see whether correlated with performance (La Porta et al) or proxy institutions with more observable variable eg frequency of coups to proxy for political stability (Barro 1991) or use evaluations collected by different institutions measuring quality of institutions, interviewing specialists
Our case study approach – using some of official World Bank data to compare across countries, and common template for interviews and structure of study
Difficulties in measuring institutions – very little quantified in terms of which institutions are important and when –
Divide between those studies that basically see institutions as market-augmenting structures, guaranteeing clear enforceable property rights, keeping transaction costs low and reducing threat of coercion; the other approach emphasise institutions that affect governance of nation – creating incentives determining whether government uses its power to create framework for productive economic activity or to redistribute wealth to itself or to its supporters ie emphasis on corruption and effects of corruption
Quantification done: using easily observable characteristics and see whether correlated with performance (La Porta et al) or proxy institutions with more observable variable eg frequency of coups to proxy for political stability (Barro 1991) or use evaluations collected by different institutions measuring quality of institutions, interviewing specialists
Our case study approach – using some of official World Bank data to compare across countries, and common template for interviews and structure of study
5. 5 Large literature eg Geroski 1995, Caves 1998, Tybout 2000, Djankov et al 2002, Klapper et al 2004, Bartelsman et al 2004
Gross entry rates in developed countries – 2.5% - 14.5%
Large literature eg Geroski 1995, Caves 1998, Tybout 2000, Djankov et al 2002, Klapper et al 2004, Bartelsman et al 2004
Gross entry rates in developed countries – 2.5% - 14.5%
6. 6
7. 7 Template - Common framework of questions, comparable data collection, semi-structured interviews and gathering of institutional material
Material on general institutional environment - gross entry, exit, net entry rates across countries and sector specific entry and exit processes
Assessment of formal regulatory procedures via publicly available data eg Djankov according to country experts. How representative are aggregate formal data – is this how entry barriers work in practice
Assessment of IO type barriers to entry via industrial sector studies: not industry studies but reflecting differences in entry barriers, in incumbent power and industry concentration etc.
Is there regulatory enforcement in practice - ie does state enforce its regulations or can they be flouted/ignored
Industrial sectors – not industry studies, but meant to reflect differences in entry barriers in different countries so picking up labour intensive industry v more capital intensive; older and newer industries,
So textiles across most countries as older established, labour intensive, smaller scale units
Electrical machinery – representing more capital intensive, higher tech, greater economies of scale, greater influence of foreign capital
IT sector – in Senegal, South Africa and India as areas of substantial entry, high skills but low capital intensity
China – two contrasting sectors in terms of degree of state intervention and extent of regulation.
Not hard and fast rule about same industrial sectors but emphasis on capturing variety of entry conditions.
Information related to ownership structure, history of sectors, product market barriers eg incumbent market power or overcapacity in industry, reluctance to shut plants
Organisational structure of industry – degree of vertical integration, subcontracting, importance of supply chains, importance of foreign ownership
Factor market barriers ie access to capital and skills
Difficulties exiting the industry, reluctance to go bankrupt, difficulties firing people
Effects of industrial policies towards particular industries – is entry encouraged by policy
Plus regional dimension and regional variation – particularly so in India and to some extent in China
Methods – semi-structured interviews eg officials in government agencies, banks, small business entrepreneurs
Methods appropriate where formal data fails to capture variety of practices -, how informal methods counteract institutional failure or reinforce it in some places
Able to compare with previous studies and publicly available data to begin to explain differing impact of entry on growth, diffusion, creative destruction, productivity
Template - Common framework of questions, comparable data collection, semi-structured interviews and gathering of institutional material
Material on general institutional environment - gross entry, exit, net entry rates across countries and sector specific entry and exit processes
Assessment of formal regulatory procedures via publicly available data eg Djankov according to country experts. How representative are aggregate formal data – is this how entry barriers work in practice
Assessment of IO type barriers to entry via industrial sector studies: not industry studies but reflecting differences in entry barriers, in incumbent power and industry concentration etc.
Is there regulatory enforcement in practice - ie does state enforce its regulations or can they be flouted/ignored
Industrial sectors – not industry studies, but meant to reflect differences in entry barriers in different countries so picking up labour intensive industry v more capital intensive; older and newer industries,
So textiles across most countries as older established, labour intensive, smaller scale units
Electrical machinery – representing more capital intensive, higher tech, greater economies of scale, greater influence of foreign capital
IT sector – in Senegal, South Africa and India as areas of substantial entry, high skills but low capital intensity
China – two contrasting sectors in terms of degree of state intervention and extent of regulation.
Not hard and fast rule about same industrial sectors but emphasis on capturing variety of entry conditions.
Information related to ownership structure, history of sectors, product market barriers eg incumbent market power or overcapacity in industry, reluctance to shut plants
Organisational structure of industry – degree of vertical integration, subcontracting, importance of supply chains, importance of foreign ownership
Factor market barriers ie access to capital and skills
Difficulties exiting the industry, reluctance to go bankrupt, difficulties firing people
Effects of industrial policies towards particular industries – is entry encouraged by policy
Plus regional dimension and regional variation – particularly so in India and to some extent in China
Methods – semi-structured interviews eg officials in government agencies, banks, small business entrepreneurs
Methods appropriate where formal data fails to capture variety of practices -, how informal methods counteract institutional failure or reinforce it in some places
Able to compare with previous studies and publicly available data to begin to explain differing impact of entry on growth, diffusion, creative destruction, productivity
8. 8 Industrial sectors – not industry studies, but meant to reflect differences in entry barriers in different countries so picking up labour intensive industry v more capital intensive; older and newer industries,
So textiles across most countries as older established, labour intensive, smaller scale units
Electrical machinery – representing more capital intensive, higher tech, greater economies of scale, greater influence of foreign capital
IT sector – in Senegal, South Africa and India as areas of substantial entry, high skills but low capital intensity
China – two contrasting sectors in terms of degree of state intervention and extent of regulation.
Not hard and fast rule about same industrial sectors but emphasis on capturing variety of entry conditions.
Information related to ownership structure, history of sectors, product market barriers eg incumbent market power or overcapacity in industry, reluctance to shut plants
Organisational structure of industry – degree of vertical integration, subcontracting, importance of supply chains, importance of foreign ownership
Factor market barriers ie access to capital and skills
Difficulties exiting the industry, reluctance to go bankrupt, difficulties firing people
Effects of industrial policies towards particular industries – is entry encouraged by policy
Plus regional dimension and regional variation – particularly so in India and to some extent in ChinaIndustrial sectors – not industry studies, but meant to reflect differences in entry barriers in different countries so picking up labour intensive industry v more capital intensive; older and newer industries,
So textiles across most countries as older established, labour intensive, smaller scale units
Electrical machinery – representing more capital intensive, higher tech, greater economies of scale, greater influence of foreign capital
IT sector – in Senegal, South Africa and India as areas of substantial entry, high skills but low capital intensity
China – two contrasting sectors in terms of degree of state intervention and extent of regulation.
Not hard and fast rule about same industrial sectors but emphasis on capturing variety of entry conditions.
Information related to ownership structure, history of sectors, product market barriers eg incumbent market power or overcapacity in industry, reluctance to shut plants
Organisational structure of industry – degree of vertical integration, subcontracting, importance of supply chains, importance of foreign ownership
Factor market barriers ie access to capital and skills
Difficulties exiting the industry, reluctance to go bankrupt, difficulties firing people
Effects of industrial policies towards particular industries – is entry encouraged by policy
Plus regional dimension and regional variation – particularly so in India and to some extent in China
9. 9 Template - Common framework of questions, comparable data collection, semi-structured interviews and gathering of institutional material
Material on general institutional environment - gross entry, exit, net entry rates across countries and sector specific entry and exit processes
Assessment of formal regulatory procedures via publicly available data eg Djankov according to country experts. How representative are aggregate formal data – is this how entry barriers work in practice
Assessment of IO type barriers to entry via industrial sector studies: not industry studies but reflecting differences in entry barriers, in incumbent power and industry concentration etc.
Is there regulatory enforcement in practice - ie does state enforce its regulations or can they be flouted/ignored
Industrial sectors – not industry studies, but meant to reflect differences in entry barriers in different countries so picking up labour intensive industry v more capital intensive; older and newer industries,
So textiles across most countries as older established, labour intensive, smaller scale units
Electrical machinery – representing more capital intensive, higher tech, greater economies of scale, greater influence of foreign capital
IT sector – in Senegal, South Africa and India as areas of substantial entry, high skills but low capital intensity
China – two contrasting sectors in terms of degree of state intervention and extent of regulation.
Not hard and fast rule about same industrial sectors but emphasis on capturing variety of entry conditions.
Information related to ownership structure, history of sectors, product market barriers eg incumbent market power or overcapacity in industry, reluctance to shut plants
Organisational structure of industry – degree of vertical integration, subcontracting, importance of supply chains, importance of foreign ownership
Factor market barriers ie access to capital and skills
Difficulties exiting the industry, reluctance to go bankrupt, difficulties firing people
Effects of industrial policies towards particular industries – is entry encouraged by policy
Plus regional dimension and regional variation – particularly so in India and to some extent in China
Methods – semi-structured interviews eg officials in government agencies, banks, small business entrepreneurs
Methods appropriate where formal data fails to capture variety of practices -, how informal methods counteract institutional failure or reinforce it in some places
Able to compare with previous studies and publicly available data to begin to explain differing impact of entry on growth, diffusion, creative destruction, productivity
Template - Common framework of questions, comparable data collection, semi-structured interviews and gathering of institutional material
Material on general institutional environment - gross entry, exit, net entry rates across countries and sector specific entry and exit processes
Assessment of formal regulatory procedures via publicly available data eg Djankov according to country experts. How representative are aggregate formal data – is this how entry barriers work in practice
Assessment of IO type barriers to entry via industrial sector studies: not industry studies but reflecting differences in entry barriers, in incumbent power and industry concentration etc.
Is there regulatory enforcement in practice - ie does state enforce its regulations or can they be flouted/ignored
Industrial sectors – not industry studies, but meant to reflect differences in entry barriers in different countries so picking up labour intensive industry v more capital intensive; older and newer industries,
So textiles across most countries as older established, labour intensive, smaller scale units
Electrical machinery – representing more capital intensive, higher tech, greater economies of scale, greater influence of foreign capital
IT sector – in Senegal, South Africa and India as areas of substantial entry, high skills but low capital intensity
China – two contrasting sectors in terms of degree of state intervention and extent of regulation.
Not hard and fast rule about same industrial sectors but emphasis on capturing variety of entry conditions.
Information related to ownership structure, history of sectors, product market barriers eg incumbent market power or overcapacity in industry, reluctance to shut plants
Organisational structure of industry – degree of vertical integration, subcontracting, importance of supply chains, importance of foreign ownership
Factor market barriers ie access to capital and skills
Difficulties exiting the industry, reluctance to go bankrupt, difficulties firing people
Effects of industrial policies towards particular industries – is entry encouraged by policy
Plus regional dimension and regional variation – particularly so in India and to some extent in China
Methods – semi-structured interviews eg officials in government agencies, banks, small business entrepreneurs
Methods appropriate where formal data fails to capture variety of practices -, how informal methods counteract institutional failure or reinforce it in some places
Able to compare with previous studies and publicly available data to begin to explain differing impact of entry on growth, diffusion, creative destruction, productivity
10. 10 Template - Common framework of questions, comparable data collection, semi-structured interviews and gathering of institutional material
Material on general institutional environment - gross entry, exit, net entry rates across countries and sector specific entry and exit processes
Assessment of formal regulatory procedures via publicly available data eg Djankov according to country experts. How representative are aggregate formal data – is this how entry barriers work in practice
Assessment of IO type barriers to entry via industrial sector studies: not industry studies but reflecting differences in entry barriers, in incumbent power and industry concentration etc.
Is there regulatory enforcement in practice - ie does state enforce its regulations or can they be flouted/ignored
Industrial sectors – not industry studies, but meant to reflect differences in entry barriers in different countries so picking up labour intensive industry v more capital intensive; older and newer industries,
So textiles across most countries as older established, labour intensive, smaller scale units
Electrical machinery – representing more capital intensive, higher tech, greater economies of scale, greater influence of foreign capital
IT sector – in Senegal, South Africa and India as areas of substantial entry, high skills but low capital intensity
China – two contrasting sectors in terms of degree of state intervention and extent of regulation.
Not hard and fast rule about same industrial sectors but emphasis on capturing variety of entry conditions.
Information related to ownership structure, history of sectors, product market barriers eg incumbent market power or overcapacity in industry, reluctance to shut plants
Organisational structure of industry – degree of vertical integration, subcontracting, importance of supply chains, importance of foreign ownership
Factor market barriers ie access to capital and skills
Difficulties exiting the industry, reluctance to go bankrupt, difficulties firing people
Effects of industrial policies towards particular industries – is entry encouraged by policy
Plus regional dimension and regional variation – particularly so in India and to some extent in China
Methods – semi-structured interviews eg officials in government agencies, banks, small business entrepreneurs
Methods appropriate where formal data fails to capture variety of practices -, how informal methods counteract institutional failure or reinforce it in some places
Able to compare with previous studies and publicly available data to begin to explain differing impact of entry on growth, diffusion, creative destruction, productivity
Template - Common framework of questions, comparable data collection, semi-structured interviews and gathering of institutional material
Material on general institutional environment - gross entry, exit, net entry rates across countries and sector specific entry and exit processes
Assessment of formal regulatory procedures via publicly available data eg Djankov according to country experts. How representative are aggregate formal data – is this how entry barriers work in practice
Assessment of IO type barriers to entry via industrial sector studies: not industry studies but reflecting differences in entry barriers, in incumbent power and industry concentration etc.
Is there regulatory enforcement in practice - ie does state enforce its regulations or can they be flouted/ignored
Industrial sectors – not industry studies, but meant to reflect differences in entry barriers in different countries so picking up labour intensive industry v more capital intensive; older and newer industries,
So textiles across most countries as older established, labour intensive, smaller scale units
Electrical machinery – representing more capital intensive, higher tech, greater economies of scale, greater influence of foreign capital
IT sector – in Senegal, South Africa and India as areas of substantial entry, high skills but low capital intensity
China – two contrasting sectors in terms of degree of state intervention and extent of regulation.
Not hard and fast rule about same industrial sectors but emphasis on capturing variety of entry conditions.
Information related to ownership structure, history of sectors, product market barriers eg incumbent market power or overcapacity in industry, reluctance to shut plants
Organisational structure of industry – degree of vertical integration, subcontracting, importance of supply chains, importance of foreign ownership
Factor market barriers ie access to capital and skills
Difficulties exiting the industry, reluctance to go bankrupt, difficulties firing people
Effects of industrial policies towards particular industries – is entry encouraged by policy
Plus regional dimension and regional variation – particularly so in India and to some extent in China
Methods – semi-structured interviews eg officials in government agencies, banks, small business entrepreneurs
Methods appropriate where formal data fails to capture variety of practices -, how informal methods counteract institutional failure or reinforce it in some places
Able to compare with previous studies and publicly available data to begin to explain differing impact of entry on growth, diffusion, creative destruction, productivity
11. 11 Template - Common framework of questions, comparable data collection, semi-structured interviews and gathering of institutional material
Material on general institutional environment - gross entry, exit, net entry rates across countries and sector specific entry and exit processes
Assessment of formal regulatory procedures via publicly available data eg Djankov according to country experts. How representative are aggregate formal data – is this how entry barriers work in practice
Assessment of IO type barriers to entry via industrial sector studies: not industry studies but reflecting differences in entry barriers, in incumbent power and industry concentration etc.
Is there regulatory enforcement in practice - ie does state enforce its regulations or can they be flouted/ignored
Industrial sectors – not industry studies, but meant to reflect differences in entry barriers in different countries so picking up labour intensive industry v more capital intensive; older and newer industries,
So textiles across most countries as older established, labour intensive, smaller scale units
Electrical machinery – representing more capital intensive, higher tech, greater economies of scale, greater influence of foreign capital
IT sector – in Senegal, South Africa and India as areas of substantial entry, high skills but low capital intensity
China – two contrasting sectors in terms of degree of state intervention and extent of regulation.
Not hard and fast rule about same industrial sectors but emphasis on capturing variety of entry conditions.
Information related to ownership structure, history of sectors, product market barriers eg incumbent market power or overcapacity in industry, reluctance to shut plants
Organisational structure of industry – degree of vertical integration, subcontracting, importance of supply chains, importance of foreign ownership
Factor market barriers ie access to capital and skills
Difficulties exiting the industry, reluctance to go bankrupt, difficulties firing people
Effects of industrial policies towards particular industries – is entry encouraged by policy
Plus regional dimension and regional variation – particularly so in India and to some extent in China
Methods – semi-structured interviews eg officials in government agencies, banks, small business entrepreneurs
Methods appropriate where formal data fails to capture variety of practices -, how informal methods counteract institutional failure or reinforce it in some places
Able to compare with previous studies and publicly available data to begin to explain differing impact of entry on growth, diffusion, creative destruction, productivity
Template - Common framework of questions, comparable data collection, semi-structured interviews and gathering of institutional material
Material on general institutional environment - gross entry, exit, net entry rates across countries and sector specific entry and exit processes
Assessment of formal regulatory procedures via publicly available data eg Djankov according to country experts. How representative are aggregate formal data – is this how entry barriers work in practice
Assessment of IO type barriers to entry via industrial sector studies: not industry studies but reflecting differences in entry barriers, in incumbent power and industry concentration etc.
Is there regulatory enforcement in practice - ie does state enforce its regulations or can they be flouted/ignored
Industrial sectors – not industry studies, but meant to reflect differences in entry barriers in different countries so picking up labour intensive industry v more capital intensive; older and newer industries,
So textiles across most countries as older established, labour intensive, smaller scale units
Electrical machinery – representing more capital intensive, higher tech, greater economies of scale, greater influence of foreign capital
IT sector – in Senegal, South Africa and India as areas of substantial entry, high skills but low capital intensity
China – two contrasting sectors in terms of degree of state intervention and extent of regulation.
Not hard and fast rule about same industrial sectors but emphasis on capturing variety of entry conditions.
Information related to ownership structure, history of sectors, product market barriers eg incumbent market power or overcapacity in industry, reluctance to shut plants
Organisational structure of industry – degree of vertical integration, subcontracting, importance of supply chains, importance of foreign ownership
Factor market barriers ie access to capital and skills
Difficulties exiting the industry, reluctance to go bankrupt, difficulties firing people
Effects of industrial policies towards particular industries – is entry encouraged by policy
Plus regional dimension and regional variation – particularly so in India and to some extent in China
Methods – semi-structured interviews eg officials in government agencies, banks, small business entrepreneurs
Methods appropriate where formal data fails to capture variety of practices -, how informal methods counteract institutional failure or reinforce it in some places
Able to compare with previous studies and publicly available data to begin to explain differing impact of entry on growth, diffusion, creative destruction, productivity
12. 12 India cont. Labour regulation: formal laws would suggest it poses significant constraints on entry but not seen as obstacle in ICA. Is obstacle in left-leaning states eg W. Bengal. Industrial Disputes Act, Industrial Employment Act and Contract Labour Act all restrictive of redeployment and closure of plants.
But in practice fewer tax and regulatory inspections than China and Brazil. Great improvements since 2000. Management time on regulation falling. Perception of regulation and corruption as obstacle lower than Brazil. Overstaffing lower than China. Regional variation in enforcement of regulation. Corruption greases wheels in some states – Tamil Nadu, Gujarat – and positively associated with profitability. Informal payments as transaction cost –decentralized but small, known amounts. In other states corruption more arbitrary
Property rights – unclear land ownership, institutional ownership, inflexible land use and property rights and high transaction costs: affect location of entry between states. Esp. poor in W. Bengal, Delhi. But land rights not seen as obstacle to growth.
Contract enforcement: slow and inefficient formally, discretion to functionaries and scope for bribery. But again not seen as obstacle to expansion.
Investment climate largely influenced by state’s interpretation of laws and regulation - industry locates in friendly states – weak governance states are eg Bihar and the Pradhesh states
13. 13 Template - Common framework of questions, comparable data collection, semi-structured interviews and gathering of institutional material
Material on general institutional environment - gross entry, exit, net entry rates across countries and sector specific entry and exit processes
Assessment of formal regulatory procedures via publicly available data eg Djankov according to country experts. How representative are aggregate formal data – is this how entry barriers work in practice
Assessment of IO type barriers to entry via industrial sector studies: not industry studies but reflecting differences in entry barriers, in incumbent power and industry concentration etc.
Is there regulatory enforcement in practice - ie does state enforce its regulations or can they be flouted/ignored
Industrial sectors – not industry studies, but meant to reflect differences in entry barriers in different countries so picking up labour intensive industry v more capital intensive; older and newer industries,
So textiles across most countries as older established, labour intensive, smaller scale units
Electrical machinery – representing more capital intensive, higher tech, greater economies of scale, greater influence of foreign capital
IT sector – in Senegal, South Africa and India as areas of substantial entry, high skills but low capital intensity
China – two contrasting sectors in terms of degree of state intervention and extent of regulation.
Not hard and fast rule about same industrial sectors but emphasis on capturing variety of entry conditions.
Information related to ownership structure, history of sectors, product market barriers eg incumbent market power or overcapacity in industry, reluctance to shut plants
Organisational structure of industry – degree of vertical integration, subcontracting, importance of supply chains, importance of foreign ownership
Factor market barriers ie access to capital and skills
Difficulties exiting the industry, reluctance to go bankrupt, difficulties firing people
Effects of industrial policies towards particular industries – is entry encouraged by policy
Plus regional dimension and regional variation – particularly so in India and to some extent in China
Methods – semi-structured interviews eg officials in government agencies, banks, small business entrepreneurs
Methods appropriate where formal data fails to capture variety of practices -, how informal methods counteract institutional failure or reinforce it in some places
Able to compare with previous studies and publicly available data to begin to explain differing impact of entry on growth, diffusion, creative destruction, productivity
Template - Common framework of questions, comparable data collection, semi-structured interviews and gathering of institutional material
Material on general institutional environment - gross entry, exit, net entry rates across countries and sector specific entry and exit processes
Assessment of formal regulatory procedures via publicly available data eg Djankov according to country experts. How representative are aggregate formal data – is this how entry barriers work in practice
Assessment of IO type barriers to entry via industrial sector studies: not industry studies but reflecting differences in entry barriers, in incumbent power and industry concentration etc.
Is there regulatory enforcement in practice - ie does state enforce its regulations or can they be flouted/ignored
Industrial sectors – not industry studies, but meant to reflect differences in entry barriers in different countries so picking up labour intensive industry v more capital intensive; older and newer industries,
So textiles across most countries as older established, labour intensive, smaller scale units
Electrical machinery – representing more capital intensive, higher tech, greater economies of scale, greater influence of foreign capital
IT sector – in Senegal, South Africa and India as areas of substantial entry, high skills but low capital intensity
China – two contrasting sectors in terms of degree of state intervention and extent of regulation.
Not hard and fast rule about same industrial sectors but emphasis on capturing variety of entry conditions.
Information related to ownership structure, history of sectors, product market barriers eg incumbent market power or overcapacity in industry, reluctance to shut plants
Organisational structure of industry – degree of vertical integration, subcontracting, importance of supply chains, importance of foreign ownership
Factor market barriers ie access to capital and skills
Difficulties exiting the industry, reluctance to go bankrupt, difficulties firing people
Effects of industrial policies towards particular industries – is entry encouraged by policy
Plus regional dimension and regional variation – particularly so in India and to some extent in China
Methods – semi-structured interviews eg officials in government agencies, banks, small business entrepreneurs
Methods appropriate where formal data fails to capture variety of practices -, how informal methods counteract institutional failure or reinforce it in some places
Able to compare with previous studies and publicly available data to begin to explain differing impact of entry on growth, diffusion, creative destruction, productivity
14. 14 Template - Common framework of questions, comparable data collection, semi-structured interviews and gathering of institutional material
Material on general institutional environment - gross entry, exit, net entry rates across countries and sector specific entry and exit processes
Assessment of formal regulatory procedures via publicly available data eg Djankov according to country experts. How representative are aggregate formal data – is this how entry barriers work in practice
Assessment of IO type barriers to entry via industrial sector studies: not industry studies but reflecting differences in entry barriers, in incumbent power and industry concentration etc.
Is there regulatory enforcement in practice - ie does state enforce its regulations or can they be flouted/ignored
Industrial sectors – not industry studies, but meant to reflect differences in entry barriers in different countries so picking up labour intensive industry v more capital intensive; older and newer industries,
So textiles across most countries as older established, labour intensive, smaller scale units
Electrical machinery – representing more capital intensive, higher tech, greater economies of scale, greater influence of foreign capital
IT sector – in Senegal, South Africa and India as areas of substantial entry, high skills but low capital intensity
China – two contrasting sectors in terms of degree of state intervention and extent of regulation.
Not hard and fast rule about same industrial sectors but emphasis on capturing variety of entry conditions.
Information related to ownership structure, history of sectors, product market barriers eg incumbent market power or overcapacity in industry, reluctance to shut plants
Organisational structure of industry – degree of vertical integration, subcontracting, importance of supply chains, importance of foreign ownership
Factor market barriers ie access to capital and skills
Difficulties exiting the industry, reluctance to go bankrupt, difficulties firing people
Effects of industrial policies towards particular industries – is entry encouraged by policy
Plus regional dimension and regional variation – particularly so in India and to some extent in China
Methods – semi-structured interviews eg officials in government agencies, banks, small business entrepreneurs
Methods appropriate where formal data fails to capture variety of practices -, how informal methods counteract institutional failure or reinforce it in some places
Able to compare with previous studies and publicly available data to begin to explain differing impact of entry on growth, diffusion, creative destruction, productivity
Template - Common framework of questions, comparable data collection, semi-structured interviews and gathering of institutional material
Material on general institutional environment - gross entry, exit, net entry rates across countries and sector specific entry and exit processes
Assessment of formal regulatory procedures via publicly available data eg Djankov according to country experts. How representative are aggregate formal data – is this how entry barriers work in practice
Assessment of IO type barriers to entry via industrial sector studies: not industry studies but reflecting differences in entry barriers, in incumbent power and industry concentration etc.
Is there regulatory enforcement in practice - ie does state enforce its regulations or can they be flouted/ignored
Industrial sectors – not industry studies, but meant to reflect differences in entry barriers in different countries so picking up labour intensive industry v more capital intensive; older and newer industries,
So textiles across most countries as older established, labour intensive, smaller scale units
Electrical machinery – representing more capital intensive, higher tech, greater economies of scale, greater influence of foreign capital
IT sector – in Senegal, South Africa and India as areas of substantial entry, high skills but low capital intensity
China – two contrasting sectors in terms of degree of state intervention and extent of regulation.
Not hard and fast rule about same industrial sectors but emphasis on capturing variety of entry conditions.
Information related to ownership structure, history of sectors, product market barriers eg incumbent market power or overcapacity in industry, reluctance to shut plants
Organisational structure of industry – degree of vertical integration, subcontracting, importance of supply chains, importance of foreign ownership
Factor market barriers ie access to capital and skills
Difficulties exiting the industry, reluctance to go bankrupt, difficulties firing people
Effects of industrial policies towards particular industries – is entry encouraged by policy
Plus regional dimension and regional variation – particularly so in India and to some extent in China
Methods – semi-structured interviews eg officials in government agencies, banks, small business entrepreneurs
Methods appropriate where formal data fails to capture variety of practices -, how informal methods counteract institutional failure or reinforce it in some places
Able to compare with previous studies and publicly available data to begin to explain differing impact of entry on growth, diffusion, creative destruction, productivity
15. 15 Template - Common framework of questions, comparable data collection, semi-structured interviews and gathering of institutional material
Material on general institutional environment - gross entry, exit, net entry rates across countries and sector specific entry and exit processes
Assessment of formal regulatory procedures via publicly available data eg Djankov according to country experts. How representative are aggregate formal data – is this how entry barriers work in practice
Assessment of IO type barriers to entry via industrial sector studies: not industry studies but reflecting differences in entry barriers, in incumbent power and industry concentration etc.
Is there regulatory enforcement in practice - ie does state enforce its regulations or can they be flouted/ignored
Industrial sectors – not industry studies, but meant to reflect differences in entry barriers in different countries so picking up labour intensive industry v more capital intensive; older and newer industries,
So textiles across most countries as older established, labour intensive, smaller scale units
Electrical machinery – representing more capital intensive, higher tech, greater economies of scale, greater influence of foreign capital
IT sector – in Senegal, South Africa and India as areas of substantial entry, high skills but low capital intensity
China – two contrasting sectors in terms of degree of state intervention and extent of regulation.
Not hard and fast rule about same industrial sectors but emphasis on capturing variety of entry conditions.
Information related to ownership structure, history of sectors, product market barriers eg incumbent market power or overcapacity in industry, reluctance to shut plants
Organisational structure of industry – degree of vertical integration, subcontracting, importance of supply chains, importance of foreign ownership
Factor market barriers ie access to capital and skills
Difficulties exiting the industry, reluctance to go bankrupt, difficulties firing people
Effects of industrial policies towards particular industries – is entry encouraged by policy
Plus regional dimension and regional variation – particularly so in India and to some extent in China
Methods – semi-structured interviews eg officials in government agencies, banks, small business entrepreneurs
Methods appropriate where formal data fails to capture variety of practices -, how informal methods counteract institutional failure or reinforce it in some places
Able to compare with previous studies and publicly available data to begin to explain differing impact of entry on growth, diffusion, creative destruction, productivity
Template - Common framework of questions, comparable data collection, semi-structured interviews and gathering of institutional material
Material on general institutional environment - gross entry, exit, net entry rates across countries and sector specific entry and exit processes
Assessment of formal regulatory procedures via publicly available data eg Djankov according to country experts. How representative are aggregate formal data – is this how entry barriers work in practice
Assessment of IO type barriers to entry via industrial sector studies: not industry studies but reflecting differences in entry barriers, in incumbent power and industry concentration etc.
Is there regulatory enforcement in practice - ie does state enforce its regulations or can they be flouted/ignored
Industrial sectors – not industry studies, but meant to reflect differences in entry barriers in different countries so picking up labour intensive industry v more capital intensive; older and newer industries,
So textiles across most countries as older established, labour intensive, smaller scale units
Electrical machinery – representing more capital intensive, higher tech, greater economies of scale, greater influence of foreign capital
IT sector – in Senegal, South Africa and India as areas of substantial entry, high skills but low capital intensity
China – two contrasting sectors in terms of degree of state intervention and extent of regulation.
Not hard and fast rule about same industrial sectors but emphasis on capturing variety of entry conditions.
Information related to ownership structure, history of sectors, product market barriers eg incumbent market power or overcapacity in industry, reluctance to shut plants
Organisational structure of industry – degree of vertical integration, subcontracting, importance of supply chains, importance of foreign ownership
Factor market barriers ie access to capital and skills
Difficulties exiting the industry, reluctance to go bankrupt, difficulties firing people
Effects of industrial policies towards particular industries – is entry encouraged by policy
Plus regional dimension and regional variation – particularly so in India and to some extent in China
Methods – semi-structured interviews eg officials in government agencies, banks, small business entrepreneurs
Methods appropriate where formal data fails to capture variety of practices -, how informal methods counteract institutional failure or reinforce it in some places
Able to compare with previous studies and publicly available data to begin to explain differing impact of entry on growth, diffusion, creative destruction, productivity
16. 16 China cont Access to capital – influence of state through state banks strong. Access to formal bank loans and credit not high for SMEs (ICA 03) Restrictions for SMEs and riskier enterprises. But reliance on internal finance high and on informal sources of finance. Illegal credit institutions. Volume of credit/GDP reported as higher than BRI. Informal methods get round formal lack of capital esp. for SMEs
Labour regulation: There is a framework formally of employment law – Labour Dispute Arbitration Committees dealing with 7000 cases 93-04 and 2.4m workers (Tian 2005). Investment climate indicators - labour skills reported as constraint. But management time dealing with regulation falling. Labour market highly competitive – government turns blind eye in favour of employers when labour laws flouted. No regard for labour codes of regulation, long working hours, lack of holidays and rights/benefits (Tian 2006). From firms’ point of view not excessive regulation in practice – relatively small informal sector and high numbers of firms.
Gross entry and survival excessive? Costs of firing and closing business high. Loss making enterprises receive subsidies and state bank loans, not liquidation
Infrastructure – no evidence that acts as constraint on entry – lower % firms using own generators than India. Telephone mainlines above India’s and mobile telephony and internet usage high
17. 17 Template - Common framework of questions, comparable data collection, semi-structured interviews and gathering of institutional material
Material on general institutional environment - gross entry, exit, net entry rates across countries and sector specific entry and exit processes
Assessment of formal regulatory procedures via publicly available data eg Djankov according to country experts. How representative are aggregate formal data – is this how entry barriers work in practice
Assessment of IO type barriers to entry via industrial sector studies: not industry studies but reflecting differences in entry barriers, in incumbent power and industry concentration etc.
Is there regulatory enforcement in practice - ie does state enforce its regulations or can they be flouted/ignored
Industrial sectors – not industry studies, but meant to reflect differences in entry barriers in different countries so picking up labour intensive industry v more capital intensive; older and newer industries,
So textiles across most countries as older established, labour intensive, smaller scale units
Electrical machinery – representing more capital intensive, higher tech, greater economies of scale, greater influence of foreign capital
IT sector – in Senegal, South Africa and India as areas of substantial entry, high skills but low capital intensity
China – two contrasting sectors in terms of degree of state intervention and extent of regulation.
Not hard and fast rule about same industrial sectors but emphasis on capturing variety of entry conditions.
Information related to ownership structure, history of sectors, product market barriers eg incumbent market power or overcapacity in industry, reluctance to shut plants
Organisational structure of industry – degree of vertical integration, subcontracting, importance of supply chains, importance of foreign ownership
Factor market barriers ie access to capital and skills
Difficulties exiting the industry, reluctance to go bankrupt, difficulties firing people
Effects of industrial policies towards particular industries – is entry encouraged by policy
Plus regional dimension and regional variation – particularly so in India and to some extent in China
Methods – semi-structured interviews eg officials in government agencies, banks, small business entrepreneurs
Methods appropriate where formal data fails to capture variety of practices -, how informal methods counteract institutional failure or reinforce it in some places
Able to compare with previous studies and publicly available data to begin to explain differing impact of entry on growth, diffusion, creative destruction, productivity
Template - Common framework of questions, comparable data collection, semi-structured interviews and gathering of institutional material
Material on general institutional environment - gross entry, exit, net entry rates across countries and sector specific entry and exit processes
Assessment of formal regulatory procedures via publicly available data eg Djankov according to country experts. How representative are aggregate formal data – is this how entry barriers work in practice
Assessment of IO type barriers to entry via industrial sector studies: not industry studies but reflecting differences in entry barriers, in incumbent power and industry concentration etc.
Is there regulatory enforcement in practice - ie does state enforce its regulations or can they be flouted/ignored
Industrial sectors – not industry studies, but meant to reflect differences in entry barriers in different countries so picking up labour intensive industry v more capital intensive; older and newer industries,
So textiles across most countries as older established, labour intensive, smaller scale units
Electrical machinery – representing more capital intensive, higher tech, greater economies of scale, greater influence of foreign capital
IT sector – in Senegal, South Africa and India as areas of substantial entry, high skills but low capital intensity
China – two contrasting sectors in terms of degree of state intervention and extent of regulation.
Not hard and fast rule about same industrial sectors but emphasis on capturing variety of entry conditions.
Information related to ownership structure, history of sectors, product market barriers eg incumbent market power or overcapacity in industry, reluctance to shut plants
Organisational structure of industry – degree of vertical integration, subcontracting, importance of supply chains, importance of foreign ownership
Factor market barriers ie access to capital and skills
Difficulties exiting the industry, reluctance to go bankrupt, difficulties firing people
Effects of industrial policies towards particular industries – is entry encouraged by policy
Plus regional dimension and regional variation – particularly so in India and to some extent in China
Methods – semi-structured interviews eg officials in government agencies, banks, small business entrepreneurs
Methods appropriate where formal data fails to capture variety of practices -, how informal methods counteract institutional failure or reinforce it in some places
Able to compare with previous studies and publicly available data to begin to explain differing impact of entry on growth, diffusion, creative destruction, productivity
18. 18
19. 19 Russia cont. Implementation of regulation that is obstacle to entrants – especially through tax and sanitary inspections. High % earnings on kickbacks
Access to capital – formally quite good but favour larger (incumbent) firms. Bank loan capital relatively low for SMEs (OPORA survey). Use of external finance for start-ups low. Not mitigated by reliance on informal networks for SMEs – blat not substitute for weaknesses of institutional environment for small firms – more exclusive and form of corruption available to elite (Hsu 2005), no moral legitimacy, supports existing power groups (Aidis and Estrin)
Infrastructure – formally not an obstacle – high ratings in Transition Reports and ICAs.
20. 20 Gross and net entry rates correlated in these countries, due to exit procedures blocked or undeveloped in various waysGross and net entry rates correlated in these countries, due to exit procedures blocked or undeveloped in various ways
21. 21 Results summarised via Figure 2 Have 4 charts looking at interaction of formal on vertical axis and informal on horizontal axis for our four main measures of institution – property rights/contracts, regulation/labour regulation, access to finance/capital markets, infrastructure
Place each country on the map for each of our four types of institution in terms of their effects on entry
Property rights: China and India top left quadrant – poor formal compensated by informal mechanisms. Russia bottom right – good formal undermined by poor informal. Brazil top right – decent formal and informal.
Labour regulation: China and India top left again and Russia bottom right. Brazil bottom left – poor formal and informal doesn’t compensate
Finance/access to credit: China and India top left again and Russia bottom right. Brazil bottom left again
Infrastructure: Russia and Brazil top right – good formal and informal mechanisms. China top left – informal compensates for insufficiencies in formal. India bottom left – poor infrastructure and got round with informal mechanisms
So some regularities: likenesses of China and India on 3/4 counts. Russia consistently bottom right except infrastructure. Brazil good on two and poor on two
22. 22
23. 23
24. 24
25. 25 Djankov data across countries: Table 2 (Doing Business data)
26. 26 Table 3 Total Entrepreneurial Activity, Income distribution and firms per capita across our countries in 2002 Data on entrepreneurship
On firms per capita – very high in China and India and fairly high in Brazil (higher than US). Very low in Russia
Size of informal economy – note large size of Brazil’s and Russia’s compared with fairly modest size of China’s and India’sData on entrepreneurship
On firms per capita – very high in China and India and fairly high in Brazil (higher than US). Very low in Russia
Size of informal economy – note large size of Brazil’s and Russia’s compared with fairly modest size of China’s and India’s
27. 27 Different GDP levels
Education levels
Infrastructure data on telephony and internet
Table considers infrastructure creating structural barriers for all entrants. Variation in telephone (mainline and cellular) and internet connections – levels far below those in developed countries. India and Senegal particularly weak, though great regional diversity in India
World Investment Report suggests that electricity supply is major constraint in several countries including China, India and Senegal
Different GDP levels
Education levels
Infrastructure data on telephony and internet
Table considers infrastructure creating structural barriers for all entrants. Variation in telephone (mainline and cellular) and internet connections – levels far below those in developed countries. India and Senegal particularly weak, though great regional diversity in India
World Investment Report suggests that electricity supply is major constraint in several countries including China, India and Senegal
28. 28 Table 4 cont Some features of developing economies relevant to entry process Indicators of infrastructure
Skills and regulation
CorruptionIndicators of infrastructure
Skills and regulation
Corruption
