Improving City Competitiveness City Management and Business Climate

1. 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

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

3. How Can City Leaders Get These Outcomes? • 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

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

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

6. What Experience Tells Us – 1How Managers Make Foreign Direct Investment Decisions and Decide to Locate Production Abroad • 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 • Bigger and faster growing markets are important for all investment decisions, even those whose purpose is exporting

7. What Experience Tells Us – 1 (continued)How Managers Make Foreign Direct Investment Decisions and Decide to Locate Production Abroad • 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

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

9. What Experience Tells Us – 2 (continued)How Managers Make Foreign Direct Investment Decisions and Decide to Locate Production Abroad • 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

10. Which Are the Most Competitive Cities … Sources: China: Dollar et al 2003; Emerging Market Economies and Worldwide: Mastercard 2008

11. Which Are the Most Competitive Cities in China? It Depends on > Who Evaluates > Criteria Used Sources: China: Dollar et al 2003; Emerging Market Economies and Worldwide: Mastercard 2008

12. Which Countries Have the Best Business Climate? China is 14thamong emerging market economies, 89th worldwide Source: World Bank, Doing Business 2009

13. Lessons LearnedWhat City Leaders Can Do to Improve Their City’s Competitiveness • A city’s competitiveness does not depend only on the country in which it is • -City leaders have scope to make a difference • 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 • The short list of what is always important generally includes • - good government • - Infrastructure • - Human capital • - Functioning of markets and institutions