Stimulate Private Investment Research Articles

Nurturing domestic firms through public procurement: A comparison between Brazil and Japan

Due to the significant amount of financial resources involved, public procurement can be used as a useful pull mechanism to stimulate private investment and to influence market dynamics, entrepreneurship, and R&D activities, in order to promote the growth of local industries. This study examines recent policies implemented by the Brazilian government aimed at using public procurement to foster the domestic industry. It also discusses how the Japanese government used public procurement as a tool to promote the growth of domestic firms before the country signed the World Trade Organization’s Government Procurement Agreement (GPA) in 1995, in order to present the advantages and drawbacks of each country’s approach. This study argues that, while the pre-GPA Japanese approach was efficient in creating more significant partnerships between the government and key domestic firms to achieve industrial policy objectives in strategic sectors, the Brazilian recently implemented policy has the advantage of being more accountable and transparent. This research argues for the possibility to harmonize transparency and accountability with initiatives to nurture domestic firms in public tenders and contends that an efficient strategy to use public procurement to promote the growth of the national industry should be a mixture of the Brazilian and Japanese approaches.

Foreign Aid Fiscal Policy: Theory and Evidence

The paper provides theoretical and empirical justifications for the instrumentality of foreign aid in stimulating private investment and fixed capital formation through fiscal policy mechanisms. We propose an endogenous growth theory based on an extension of Barro (1990) by postulating that the positive effect of aid mitigates the burden of the taxation system on the private sector of recipient countries. The empirical validity is based on data from 53 African countries for the period 1996-2010. While the findings on the tax effort channel are overwhelmingly consistent with theory across specifications and fundamental characteristics, those of the ‘government expenditure’ channel are a little heterogeneous but broadly in line with the theoretical postulations. Justification for the slight heterogeneity and policy implications are discussed.

Legislative Protection of Property Rights in Ethiopia: An Overview

There are ambiguities, inconsistencies, gaps and outdated features in the legislative protection of some property rights in Ethiopia. Moreover, there is the bestowal of wide and undue discretion to various administrative authorities without judicial scrutiny. These problems clearly lead to discretionary and arbitrary administrative decisions and inconsistent court rulings thereby posing insecurity in the protection of property rights. Well-specified property rights stimulate private investment by encouraging property rights holders to invest on their property and they further facilitate the transfer of property to its most efficient user in the context of win-win equitable exchange. There is thus the need to enhance the clarity and coherence of Ethiopia’s property law regime that especially regulates land use rights, expropriation, intellectual property, share purchases, and the transfer of business premises. Key words : Property rights, land law, expropriation, intellectual property, Ethiopia

Increasing synergies between institutions and technology developers: Lessons from marine energy

This paper describes innovation activities in the marine energy sector across ten European countries in 2011. Intense knowledge creation occurred in the UK and northern European countries, while European research networks encouraged public–private partnerships facilitating knowledge diffusion. An analysis based on a technological innovation system (TIS) has identified challenges for the system to evolve from one phase of development to another, i.e. from pre-development to take-off phase. In order for marine energy to pass successfully through the commercialisation ‘valley of death’, entrepreneurial experimentation and production is crucial. Entrepreneurial initiatives were developed mainly in the United Kingdom, Denmark, Norway and Ireland, whereas France, Germany and Sweden were active through venture capital initiatives. Additional system-builders, such as the authorities in charge of energy policies, could offer guidance for research, ensure legitimacy and effectively mobilise resources for system development. Although public support was efficient in stimulating private investment, national targets seemed less efficient in creating a long time horizon for private investors, due to consecutive, unexpected changes. In contrast, positive interactions between technology developers and policy-makers could empower market formation. Ultimately, the creation of a policy community, also involving local communities, could foster a positive environment for the development of innovation activities.

Institutional Transplant as Political Opportunity: The Practice and Politics of Indian Electricity Regulation

India has a decade-long experience with independent regulatory agencies in public services as an institutional transplant from the industrialized world. Introduced at the behest of international donor agencies, regulators in India are intended, somewhat naively, to provide an apolitical space for decision making to assuage investor concerns over arbitrary administrative actions, and thereby stimulate private investment. In practice, regulators have had to negotiate a terrain over which the state has continued to exercise considerable control. Regulators have also been been shaped in their functioning by national and sub-national political traditions and by administrative and political practices. The result is a hybrid institutional form that combines politics as usual with intriguing new, and unanticipated, opportunities for political intervention. This paper will explore the origins of electricity regulation as a form of institutional isomorphism. It will then compare the regulatory experience in India's electricity sector across two Indian states to understand the implications of transplanting regulatory agencies in the global south. An examination of the process through which regulatory decisions are reached illustrates how existing bureaucratic and technocratic networks, transplanted procedures, and administrative cultures combine to conservatively manage long-standing political tensions around electricity. In seeking to manage those tensions, regulators often take decisions - on tariff setting, for example - based on a political reading that belies the technocratic narrative on which institutional credibility rests. At the same time, civil society groups ranging from residential associations to professional associations to individuals are using newly created regulatory spaces to structure a more deliberative decision process.

Foreign Aid, Investment and Fiscal Policy Behavior: Theory and Empirical Evidence

The paper provides theoretical and empirical justifications for the instrumentality of foreign aid in stimulating private investment and fixed capital formation through fiscal policy mechanisms. We propose an endogenous growth theory based on an extension of Barro (1990) by postulating that the positive effect of aid mitigates the burden of the taxation system on the private sector of recipient countries. The empirical validity is based on 53 African countries for the period 1996-2010. While the findings on the tax effort channel are overwhelmingly consistent with theory across specifications and fundamental characteristics, those of the government expenditure channel are a little heterogeneous but broadly in line with the theoretical postulations. Justification for the slight heterogeneity and policy implications are discussed.

Customary Land Reform to Facilitate Private Investment in Zambia: Achievements, Potential and Limitations

In the name of development, governments in Africa are reformulating land policies to facilitate privatisation of customary land rights. The main rationale for this is to stimulate private investment through tradable land titles, which will enhance local economic activity and ultimately contribute to increased incomes and poverty alleviation. However, these land reform proposals have often produced unintended results leading to exclusion of the poor and servicing the interests of the elite. Zambia is not an exception in the land reform rhetoric. In 1995, the government enacted a pro-investment law to attract investment from abroad. Consequently, large tracts of customary land were converted to private tenure as increasing foreign investments were made in the country. One example of such investments is mining; for example, Lumwana and Kansanshi mines were opened up in Solwezi. These mines have attracted more people and fringe investments in search of economic opportunities. This has further led to increased pressure on land as more people and organisations seek to acquire customary land from chiefs and convert it to private leaseholds. This paper uses personal experience and research to present the achievements, potential and limitations of private investments in local communities and their economy. The paper argues that, despite the huge potential of private investment, attaining poverty alleviation through land reform strategies in Zambia still remains overshadowed by conflicting agendas, i.e. serving the interests of poor citizens versus pursuing the collective global market agenda in order to gain international recognition and acceptance. This is particularly crucial given that these agendas are often at odds with each other.

English

A major agricultural sub-sector where achieving food security has become elusive in Nigeria is the fish production subsector. Demand for fish in Nigeria stands at about 1.5 million metric tonnes per annum while domestic production is just 511,700 metric tonnes. The wide gap between demand and supply is attributed to increasing population, improved nutrition, underdeveloped local fish farming potentials and depletion of artisanal sources resulting from unsustainable fishing. The nation spends about N150 billion (US$1billion) annually to bridge the gap between supply and demand. This huge amount spent annually constitutes enormous strain and drain on the nation’s foreign reserves especially when the potentials for local production to meet the domestic market and for export exist in abundance. Consequently, several policy measures have been put in place to stimulate local fish farming. Till date, the results from the colossal investment and policy have not yielded the desired results. Hence, this study attempted to examine the factors determining the sustainability of fish farming in Nigeria with a view to stimulating private investment in the sector, meet national market demand through domestic production and export the excess to enhance the income of farmers. Regression and budgetary analyses were used to analyze data obtained from 100 fish farmers in ten local government areas of Osun State. The result showed that the average net income in the study area was N318,640.75 while the gross margin was N457,327.95. The benefit-cost ratio was 1.5 indicating that for every N100 invested, the enterprise yields additional N50. The regression analysis showed that experience of farmers in fish farming, quantity of feed used, access to credit and size of pond were significant determinants of fish farm production in Nigeria. Major challenges confronting fish farming in the study area are lack of access to credit, high cost of inputs and poor extension services.   Key words: Fish farming, inland waters, nutrition, employment, poverty, sustainable, pond.

Investment models and regulatory constraints for broadband backbone roll‐out in selected African countries

PurposeThis paper seeks to identify policy and regulatory bottlenecks that need to be overcome in order to stimulate private sector investment in backbone networks in selected African countries (Côte d'Ivoire, Ethiopia, Kenya, South Africa and Uganda).Design/methodology/approachIt does so by exploring policy and regulatory frameworks and market structures that influence investment decisions on backbone infrastructure roll‐out; it investigates models and strategies adopted by the public sector to finance national backbone infrastructure; and it provides recommendations on how to stimulate private investment in backbone roll‐out by creating an enabling policy and regulatory environment.FindingsResearch findings show that the telecommunications sector in the selected African countries has witnessed the return of state‐led investment in the roll‐out of fibre backbones. The rationale for state‐led intervention has often been cited as market failure regarding investment in broadband backbone roll‐out. However, many of the policy and regulatory barriers to market entry remain, including protectionist legislation, which has limited private sector participation in investing in backbone.Practical implicationsThe reality is that African governments are maintaining control over national backbones and, in some markets where the telecommunications infrastructure sector has been liberalised, the state‐owned operators may enter into direct competition with the private sector or may delay delivery by the private sector.Originality/valueThe value of the paper is that it provides evidence on how to improve the roll‐out and extension of national broadband backbone networks through the development of a policy and regulatory framework which facilitates private sector investment in this sector. The paper also makes recommendations to governments for the facilitation of private investment in backbone networks through the development of an enabling policy and regulatory environment.

Investment expenditure and capital accumulation in an inflationary environment: The case of Turkey

The empirical results of the paper show that the private fixed capital accumulation in Turkey is constrained by the demand constraint and the availability of financial resources. The significance of the liquidity variable clearly points out that credit policy and accommodating monetary policy with the lower rates of interests must be the essential elements of economic policies that revive investment in Turkey. It seems from the empirical results that the cost of capital has a significant but discouraging effect on investment expenditure. With this empirical finding it also becomes evident that fiscal stimuli would work in stimulating private investment, they must be the essential components of an investment programme in Turkey. In regard with the purpose of this paper, the variable, namely the willingness-to-invest, that is expected to capture the perception of investors on investment climate, also appears to be significant factors for the overall sample period. Interestingly, the speed of adjustment of private investment from disequilibrium is fairly slow. This is because there may be some frictions (such as heavy tax burden) and/or some structural constraints (e.g. insufficient infrastructure and inadequate legislative structure) in the economy causing this slow down. In reviving private investment, especially in the long run, one must pay attention to the importance of these factors, and appropriate government actions have to be taken.

Health Universal Access and Innovation: the Triple Helix Approach in Action

This paper presents how innovation in health/health services in IDCs - Innovative Developing Countries (developing countries with relevant investments in education, health research infrastructure, and manufacturing capacity in the last decades) can benefit from the Triple Helix approach. Diseases affect populations of developed and developing countries unequally in terms of disease burden distribution worldwide and in the R&D investment in health. Global diseases are object of intense R&D, whilst diseases related to poverty (or neglected diseases) do not receive the same attention from pharmaceutical industry. This market failure scenario highlights the role of the IDCs in the struggle against neglected diseases, since they are closer to the reality of such diseases and have an increasingly capacity to cope with health issues globally. In this sense, the case here presented is an example of the potential offered by Triple Helix approach to address the neglected diseases issue. Despite technology transfer agreements being a widespread practice of Brazilian Ministry of Health, when it comes to neglected diseases, its effectiveness is limited, due to the market failure already mentioned. Nevertheless, in an IDC environment the Ministry of Health can make use of its purchasing power both to introduce a new product in the Unified Health System, ensuring the nationalization of production, and to stimulate private investment in R&D for neglected diseases. The mechanism used in this case: the association of technology transfer to collaborative development of a new product, presents itself as a feasible option to foster innovation in neglected diseases, combining the efforts of a private company, a public R&D institution and an innovation policy with a strong presence of the Ministry of Health and respective use of State's purchasing power. We argue that the feasibility of such an action depends on the presence of two key elements: Brazil's condition as an IDC and the articulation of these three key actors as proposed by the Triple Helix Approach.

Adjustment in the Role of the Overseas Private Investment Corporation (OPIC) in Sub-Saharan Africa

The Overseas Private Investment Corporation (OPIC), an American government agency that promotes private investment in developing nations, has been a contested agency since its inception. Critics contend that it subsidizes big business, distorts market signals, and supports projects that have a detrimental effect on local communities. Its supporters argue that it is central to the U.S. foreign developmentassistance strategy. In this article, I analyze the historical debate over its role and show how systemic and domestic pressures triggered adjustments in its activities that enabled its survival. I illustrate these adjustments with an analysis of its role in sub-Saharan Africa that draws out both the promotion of U.S. economic interests and the evolution of progressive governance guidelines that increase its chances of promoting sustainable development. Promotion of private investment has always been a component of the United States economic development policy toward sub-Saharan Africa. Historically, the central institutional actor in investment promotion in developing countries has been the Overseas Private Investment Corporation (OPIC), an independent agency established in 1969 and in operation by 1971, to assist, finance, and insure private American investors in developing nations. OPIC was designed to stimulate private investment in risky economic environments where private insurance is unavailable. Its supporters argue that this is crucial to the encouragement of economic development in the poorest regions of the world. According to OPIC’s development guidebook, Foreign Direct Investment (FDI) can provide these benefits to society: “technology transfer, human capital formation, international trade integration, a more competitive business environment, enterprise development.” OPIC acknowledges that research on the link between FDI and economic growth is limited; however, its position is that FDI is most likely to contribute to economic growth when there is a private sector with rule of law that enables the

Price Pressure in the Government Bond Market

What determines the term structure of interest rates? Standard economic theory links the interest rate for maturity T to the willingness of a representative agent to substitute consumption between times 0 and T. The standard model contrasts sharply with a more informal view based on investors’ preferred habitat, proposed by John Culbertson (1957) and Franco Modigliani and Richard Sutch (1966). According to the preferred-habitat view, there are investor clienteles with preferences for specific maturities, and the interest rate for a given maturity is influenced by the demand of the corresponding clientele and the supply of bonds with that maturity. For example, the typical clientele for long-term bonds are pension funds. An increase in their demand would be expected to raise prices of long-term bonds and thus lower long-term interest rates. In short, preferred habitat implies that there is price pressure in the bond market. While the preferred-habitat view has intuitive appeal, it has not entered into the academic mainstream, typically being relegated to a paragraph in MBA-level textbooks. One reason for this is the mixed findings in early empirical studies of the term structure. Specifically, between 1962 and 1964, the US Treasury and Federal Reserve raised the supply of short-term government debt while simultaneously lowering the supply of long-term debt. This program, known as Operation Twist, aimed to raise shortterm interest rates, and so improve the balance of payments, while also lowering long-term rates to stimulate private investment. A number of papers evaluated Operation Twist, and while they reached different conclusions, none found strong evidence that the operation was effective in flattening the term structure (e.g., Modigliani Price Pressure in the Government Bond Market

Can macroeconomic policy stimulate private investment in South Africa? New insights from aggregate and manufacturing sector‐level evidence

AbstractThis study explores the determinants of investment using both aggregated industry‐level data and disaggretated data on 27 sub‐sectors of the manufacturing sector for the period 1970–2001. According to the results in this study, the government has potentially powerful means at its disposal to stimulate private investment. In particular, a domestic demand stimulus and public investment expansion will produce large gains in private investment. While the direct effects of lowering the interest rate appear to be quantitatively small, indirect effects operating notably through domestic demand and cheaper credit are likely to be large. The evidence in this study also indicates that it is important to minimise exchange rate instability to encourage investment. Copyright © 2008 John Wiley & Sons, Ltd.

Patent disclosure and R&D competition in pharmaceuticals

The prominent role played by patents within the pharmaceutical domain is unquestionable. In this paper, we focus on a relatively neglected implication of patents: the effect of patent-induced information disclosure on the dynamics of R&D and market competition. The study builds upon the combination of two large datasets, linking the information about patents to firm-level data on R&D projects and their outcome. Two case studies in the fields of anti-inflammatory compounds and cancer research complement our analysis. We argue that patent disclosure induces R&D competition and shapes firms’ technological trajectories. In fact, we show that under conditions of uncertainty, patent disclosure can contribute to generate knowledge spillovers, promoting multiple parallel research efforts on plausible targets and stimulating private investment and competition.

Macroeconomic Factors and Private Investment: An empirical analysis for ECOWAS and its sub-groups

This study examines the effect of macroeconomic factors on private investment in the ECOWAS sub-region during the period 1986-2004. Descriptive analysis revealed that private investment is low in most ECOWAS countries and this has affected their output in terns of low growth and Gross Domestic Product (GDP). Suggesting that the low living standard in the ECOWAS sub-region can be attributed to the relatively poor private investment. Average private investment in the entire ECOWAS has not exceeded 10.0 per cent over a period time. Showing that all the unilateral and collaborative efforts on promoting private investment had little or no impact. It employs panel data technique of analysis, covering 15 ECOWAS countries. Empirical analyses were carried out at both aggregate and disaggregate levels by sub-grouping the countries into the l’Union Economique et Monétaire Ouest Africaine- UEMOA or WAEMU (West African Economic and Monetary Union} (Francophone- ECOWAS countries) and non- UEMOA (Anglophone ECOWAS countries). The problem of endogeneity during model specification was addressed by constructing an alternative GMM estimator that combined the level and first difference specifications using lagged levels of variables as instruments. Econometrics analysis in this paper revealed that the poor performance of ECOWAS countries, in terms of private investment since the mid-1980s, stemmed partly from the differences in the policies pursued by individual countries or region sub-groups, particularly in the areas of monetary interest rate policy and its deteriorating infrastructures. Inappropriate macroeconomic policies, especially fiscal and monetary (i.2. exchange rate and public expenditure policy) have also discouraged private investment in the sub region. However, productive capacity and market factors have helped to boost investment. In conclusion, macroeconomic stability, reduction of external debts, appropriate exchange and interest rate policies and increased government investment, particularly on infrastructure, would play a major role in stimulating private investment in the sub-region, When all these are done, then there is need for improved service delivery at an affordable rate on the part of the private investors so as to improve welfare of the people.

Exchange Rate Uncertainty, Sociopolitical Instability and Private Investment: Empirical Evidence from Latin America

AbstractUsing exchange rate uncertainty (ERU) and sociopolitical instability (SPI) as measures of macroeconomic imbalances and political disorder, respectively, we investigate the link between these two factors and private investment in Latin America. The analysis shows that while ERU and SPI negatively impact private investment jointly, the individual impact of ERU is much greater than that of SPI. Our results should prove useful both to policymakers and others interested in understanding the impact of uncertainty on private investment. Most importantly, macroeconomic policies that limit excess volatility in relative prices should lessen an economy’s general level of investment risk leading to enhanced private investment. Further, though lesser in degree, institutional reforms that reduce social tensions and strengthen property rights should also stimulate private investment. Finally, structural reforms that combine these two are likely to foster a robust market for private investment thus contributing to an economy’s growth potential.

Making enduring choices: Uncertainty and public policy

This paper provides an experimental test of the theory of investment under uncertainty and applies the theory to a group of policy decisions. Investment under uncertainty describes a class of problems, characterized by uncertainty that resolves itself over time, sunk costs that cannot be fully recovered, and the ability of the decision maker to wait without loss of strategic advantage. It also implies a “bad news principle,” under which decision makers are motivated by expected costs, but not expected benefits. The theory is illustrated as a two-period model for which the decision maker can either invest in the first period (and receive a known current return plus an uncertain future return) or defer until the second period when uncertainty is resolved. By foregoing current period benefits a “cost” that is sometimes referred to as an option value is incurred. Parameter values are specified and an experimental test, the results of which closely track the predictions of the theory, is described. Three cases, the structuring of contingent valuation questionnaires, the operalization of the precautionary principle in risk analysis, and the development of public policy to stimulate private investments (as for energy-saving products), are used to illustrate potential public policy applications.

Tenure security, resource poverty, public programs, and household plot‐level conservation investments in the highlands of northern Ethiopia

AbstractLand degradation poses a serious problem for the livelihoods of rural producers. Furthermore, there is rarely enough private investment taking place to commensurate the scale of the problem. This article examines the role of tenure insecurity, resource poverty, risk and time preferences, and community‐led land conservation on differentiated patterns of household investment in land conservation in northern Ethiopia. We control for biophysical, household characteristics, market access conditions, and village level factors. Investments in soil bunds and stone terraces are specifically studied so as to capture the link between these various factors and the durability of conservation investments. We introduce the distinction between the determinants of the decision to invest and how much to invest in conservation. Regression results show that publicly led conservation programs seem to significantly stimulate private investment. A host of plot‐level variables and household perceptions of returns on conservation investments, expressed in terms of perceived improvements in land quality and increased crop yields, were found to be critical to the decision to invest and intensify soil conservation. The evidence on the significance of households' attitudes toward risk aversion suggests the important role of risk and the household's risk‐bearing capacity in the decision to intensify conservation measures. At the same time, tenure security indicators and households' resource endowments (resource poverty) had weaker effects in increasing willingness to invest and the level of investment made. The policy implications of these results point to the importance of agricultural research and extension efforts that target technologies which reduce household risk and poverty while enabling sustainable investments in conservation measures by individual households.

Stimulating private investment in agricultural research for greater impact on poverty reduction.

Abstract This article reviews the international experience with approaches to encouraging private investment in agricultural research and technology for a greater impact on poverty reduction. Some specific types of technologies and the roles for public and private sector involvement in generating new technology are identified, as well as the potential for public-private partnerships. Three most promising mechanisms for stimulating private investment in agricultural research are then revised in some detail: taxation schemes, co-funding arrangements, and output-based approaches. The article concludes that in order to help create a significant impact on poverty reduction, the innovative incentive system of tying rewards to adoption of technology development is the most likely to succeed.