Justin Yifu Lin and Boris Pleskovic
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2008 Public Disclosure Authorized ABCDE Annual World Bank Conference on Development Economics Global Public Disclosure Authorized Private Sector and Development Public Disclosure Authorized Edited by Justin Yifu Lin and Public Disclosure Authorized Boris Pleskovic Private Sector and Development Annual World Bank Conference on Development Economics—Global 2008 Private Sector and Development Edited by Justin Yifu Lin and Boris Pleskovic Washington, D.C. © 2009 The International Bank for Reconstruction and Development / The World Bank 1818 H Street, NW. Washington, DC 20433 Telephone 202-473-1000 Internet www.worldbank.org E-mail [email protected] All rights reserved. 1 2 3 4 :: 12 11 10 09 This volume is a product of the staff of the International Bank for Reconstruction and Development / The World Bank. 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Contents ABOUT THIS BOOK vii INTRODUCTION 1 Justin Yifu Lin and Boris Pleskovic OPENING SPEECH 9 Janez Jansˇa OPENING SPEECH 15 Andrej Bajuk OPENING SPEECH 17 François Bourguignon KEYNOTE ADDRESS 19 Tarun Das KEYNOTE ADDRESS Privatization in Development: Some Lessons from Experience 25 François Bourguignon and Claudia Sepúlveda KEYNOTE ADDRESS 47 Janez Potocˇnik KEYNOTE ADDRESS Informality, Productivity, and Growth in Mexico 53 Santiago Levy KEYNOTE ADDRESS 65 Abdoulaye Sarre Finance and Economic Opportunity 69 Asli Demirgüç-Kunt and Ross Levine COMMENTS Liliana Rojas-Suarez 89 Victor Murinde 93 v vi | CONTENTS Bring Me Sunshine: Which Parts of the Business Climate Should Public Policy Try to Fix? 99 Wendy Carlin and Paul Seabright COMMENTS Loh Wah-Sing 147 Jan Svejnar 151 Comments on “Reforming Public Service Delivery,” by Timothy Besley and Maitreesh Ghatak Jean-Paul Azam 155 Gábor Péteri 161 About This Book The Annual World Bank Conference on Development Economics is a forum for dis- cussion and debate of important policy issues facing developing countries. The con- ferences emphasize the contribution that empirical economic research can make to understanding development processes and to formulating sound development poli- cies. Conference papers are written by researchers in and outside the World Bank. The conference series was started in 1989. Conference papers are reviewed by the editors and are also subject to internal and external peer review. Some papers were revised after the conference, to reflect the comments made by discussants or from the floor, while most discussants’ comments were not revised. As a result, discussants’ comments may refer to elements of the paper that no longer exist in their original form. Participants’ affiliations identified in this volume are as of the time of the con- ference, May 17–18, 2007. The planning and organization of the May 2007 conference was a joint effort by the Government of Slovenia and the World Bank. We gratefully acknowledge timely and valuable contributions made by all the members of the steering committee and several anonymous reviewers. We would also like to thank, Leita Jones, Conference Coordinator, whose excellent organizational skills helped to ensure a successful con- ference. Finally, we thank the editorial staff for pulling this volume together, espe- cially Mark Ingebretsen, Stuart K. Tucker, and Nora Ridolfi from the Office of the Publisher. vii Introduction JUSTIN YIFU LIN AND BORIS PLESKOVIC The Annual World Bank Conference on Development Economics (ABCDE) is a lead- ing forum for advanced, forward-looking research on important development issues. Each year, the ABCDE brings policy makers and politicians together with researchers from academe, international organizations, and think tanks. The diverse perspectives of the international development community mingle and coalesce through in-depth debates on important themes on the development agenda. The 2008 ABCDE was devoted to the theme “The Private Sector and Development” and highlighted such issues as financial inclusion, key factors in the business climate, and the provision of public services by nonstate actors. The conference, cosponsored by the government of Slovenia and the World Bank, took place in Bled, Slovenia, May 17–18, 2007. The conference began with words of welcome and opening remarks by Janez Janˇsa, Prime Minister of Slovenia; Andrej Bajuk, Minister of Finance, Slovenia; and François Bourguignon, Chief Economist and Senior Vice President, development economics at the World Bank. Bourguignon later gave one of the keynote addresses, as did Tarun Das, Chief Mentor of the Confederation of Indian Industry; Janez Potocˇnik, European Commissioner for Science and Research; Santiago Levy, Senior Fellow at the Brookings Institution; and Abdoulaye Sarre, a successful entrepreneur and businessman from Senegal. The conference’s three plenary sessions featured four papers presented by leading development economists. Delivering the closing remarks were Bajuk; Shigeo Katsu, World Bank Vice President for Europe and Cen- tral Asia; and Trevor Manuel, Minister of Finance, Republic of South Africa. Justin Yifu Lin is Chief Economist and Senior Vice President for Development Economics at the World Bank. Boris Pleskovic is Research Manager for Development Economics at the World Bank. Annual World Bank Conference on Development Economics 2008, Global © 2009 The International Bank for Reconstruction and Development/The World Bank 1 2 | JUSTIN YIFU LIN AND BORIS PLESKOVIC Opening Addresses In his welcoming address, Janez Janˇsa emphasizes the importance of the private sector in improving standards of living and meeting other development challenges. Devel- opment economics seeks to identify the most important factors influencing economic growth and improvements in living standards. It thus stands at the crux of theory and practice, knowledge and action. Janˇsa praises the World Bank’s special role as the driving force behind progress in development economics and as a provider of financ- ing and technical assistance to developing countries. Although poverty remains a global challenge, the World Bank’s achievements in assisting poor countries in their economic development have been great. Janˇsa then enumerates Slovenia’s impressive achievements since it gained independence in 1991. At the beginning of independence, Slovenian enterprises lost 80 percent of their export markets overnight, and unem- ployment grew rapidly. But Slovenia took determined policy measures to improve the operating environment for the private sector, and between 1992 and 2006 the private sector’s share of gross domestic product (GDP) grew from 30 to 65 percent. Now, Slovenia’s economic situation has never been better. In 2004 Slovenia graduated from World Bank assistance (the first transition country to do so), became a Bank donor, and joined the European Union (EU). In January 2007 Slovenia adopted the euro, and in January 2008 it assumed the six-month presidency of the European Union. Janˇsa states that Slovenia is proud to have joined the World Bank and other international organizations as a donor in the fight against poverty and recognizes that both the pub- lic and private sectors must play important roles. Andrej Bajuk remarks that the ABCDE, originally held each year in Washington, DC, has become increasingly global. He observes that in 2006 it took place in the most populous country in the world, China, and in 2007 was being held in one of the smallest, Slovenia. Bajuk also notes the importance of this year’s theme. He points out that the World Bank, in its first four decades, paid scant attention to the private sector, focusing instead on public sector projects. But, he adds, over the past 20 years the World Bank, along with the international community as a whole, has recognized the crucial significance of the private sector in fostering economic development and growth. The development of the private sector has been crucial to Slovenia’s suc- cessful economic transition and its adoption of the euro. Bajuk reports that now that it has become a donor rather than a recipient of