Politics, Policies, and Productivity: An International Dataset Codebook Ariel Mecikovsky* Carlos Scartascini* Mariano Tommasi** *Inter-American Development Bank **Universidad de San Andrés Download the dataset at: http://www.iadb.org/research/pub_desc.cfm?pub_id=DBA-013&lang=en Citation of the dataset: Mecikovsky, Ariel, Scartascini, Carlos and Tommasi, Mariano. 2010. “Politics, Policies, and Productivity: An International Dataset”. Washington, DC, United States: Research Department, Inter-American Development Bank Contact info: amecikovsky@iadb.org The views and interpretations in this document are those of the authors and should not be attributed to the Inter-American Development Bank, or to any individual acting on its behalf. 1 I. Introduction Latin American countries have fared relatively poorly in terms of fostering productivity. Latin America’s productivity has been falling compared to other benchmark countries such as the United States, and the countries of the region have not even performed well in absolute terms. Had they performed at the same level as the world’s average country, countries like Argentina would be among the world’s richest. Yet most Latin American countries have fallen behind. IDB (2010) presents a thorough analysis of the reasons behind this decline. Basically, productivity in Latin America is hindered by the lack of credit, macroeconomic volatility, high transport costs, distorted labor market incentives, fragmented social policy, discriminatory tax enforcement, and a dearth of adequate productive development policies. Identifying the key obstacles for productivity growth in a given country is easier than implementing a coherent set of policies to address them. Even recognizing productivity as a policy priority requires some nontrivial policymaking capabilities. The policy changes necessary to unlock productivity are sometimes difficult to sell to the public, as they entail short-term sacrifices and require substantial resources. Implementing such policies demands articulation in a number of different policy domains, as well as broad public-private cooperation. Unfortunately, most Latin American polities lack precisely the capabilities required to implement such complex policy objectives. Not all countries face the same policy challenges, and not all countries share the same institutional configurations: ones that may facilitate or impede productivity enhancement. Scartascini and Tommasi (2010) shows these connections 2 empirically using the data described in this document and available in the companion dataset. This dataset compiles data publicly available that proxies for the quality of the public policies that affect productivity at the national level, alongside with proxies for the articulation and characteristics of interest groups. It complements another dataset by the authors and colleagues (Berkman et al. (2008)) on the features of public policies. The main sources of data are the World Economic Forum’s Global Competitiveness Report (GCR) and the World Bank’s World Development Indicators (WDI). The set of variables presented here are available for 200 countries around the world. The project leading to the compilation of this dataset builds upon previous work conducted by the authors and colleagues. Those projects have focused on various institutional features of political institutions, including the different branches of government, bureaucracy, and electoral variables, to analyze their effects on the policymaking process and the resulting public policy outcomes.1 Therefore, this study includes new measures of public policies and characteristics/articulations of real actors. This document is organized as follows. The next three sections introduce the public policy and real actors’ variables. These sections are followed by a description of the method employed to construct the variables and some robustness checks that were carried out to assess the reliability of the data. 1 See IDB (2005), Spiller & Tommasi (2007), Stein & Tommasi (2007), Stein et al. (2008), Berkman et al. (2008). 3 2. Public Policies There is an extensive literature that analyzes the determinants of productivity.2 In most cases, we could identify that the literature associates productivity variations at firm, industry or country level, to the type of tax policy (Arnold & Schwellnus, 2008; Vartia, 2008), regulations and subsidies (Bridgman et al., 2007; Scarpetta & Tressel, 2002; Crafts, 2006), innovation (Griffith et al. 2006; Parisi et al. 2006, Boris et al. 2008), infrastructure (Pineda & Rodriguez, 2005; Mamatzakis, 2007), competitivity (Gardiner, Martin & Tyler, 2004; O’Mahony & Van Ark, 2003), credit (Gatti & Love, 2008; Butler & Cornaggia, 2008) and informal sector (Farrel, 2004; Fajnzylber et al. 2006; Levy, 2007). The sources that we use to measure the public policies variables are perceptionbased indicators derived from responses to the World Economic Forum executive opinion survey. Surveys of this type provide valuable information on a broad range of variables for which hard data is typically scarce. They have the advantage of permitting the construction of indicators with a relatively high degree of conceptual precision. The homogeneity of the sample group allows the use of fairly well-specified concepts, and also the use of a large set of questions permits the unbundling of broad concepts. This type of indicators can be considered as a useful tool to spot specific problems and to provide some guidance in identifying potential areas for policy intervention. 2.1. Administrative Easiness Startups burdenstartprom: Administrative Burden for Startups (GCR, 2001, 2003, 2004). 2 See Isaksson (2006), Iverson (2006) and Sveikauskas (2007). More recently, IDB (2010) surveys this literature in the context of Latin America. 4 Average of responses to the question: Starting a new business in your country is generally: 1=extremely difficult and time consuming; 7=easy. 2.2. Burden local regulation burden_local_regulation: Burden of Local Regulation (GCR, 2004). Average of responses to the question: Complying with administrative requirements (permits, regulations, report) issued by the local/city/regional government in your country is (1=burdensome; 7=not burdensome). 2.3. Credit index creditindexprom: Credit Index (2001, 2008). Index based in the mean of the sum of the variables “Capital Availability” and “Access to loans”. Values from 1 to 7. Higher values indicate the existence of more credit in the country. Table 1. Credit Index: Components and Index Summary Mean SD. Obs. Min. Max. Capital Availability 3.13 0.88 127 1.9 5.45 Access to loans 3.256 0.885 127 1.8 5.3 Credit Index 3.180 0.865 127 1.85 5.275 5 Table 2. Credit Index: Components and Index Correlations with p-values Capital Availability Capital Availability Access to loans Credit Index 1 (0) 0.931*** (0.00) 0.967*** (0.00) Access to loans 1 (0) 0.978*** (0.00) ***p<0.01 **p<0.05 2.3.1. Access to loans accesloanprom: Access to Loans (GCR, 2000-2008). Average of responses to the question: How easy is to obtain loan in your country? (1=impossible; 7=easy). 2.3.2. Capital Availability capitavailabprom: Capital Availability (GCR, 2000-2008). Average of responses to the question: How easy is to get capital for entrepreneurship? (1=impossible; 7=very easy). 2.4. Formal sector informalsectprom: Informal Sector (GCR, 2001, 2002, 2004, 2005, 2006). Average of responses to the question: What percentage of businesses in your country would you guess are unofficial?: (1=less than 5%; 2=6-10%; 9=more than 70%). 2.5. Infrastructure infraestrucqualprom: Infrastructure Quality (GCR, 2001-2008). 6 Average of responses to the question: General infrastructure in your country is (1=poorly developed and inefficient; 7=among the best in the world). 2.6. Innovation innovation_subindex: Innovation Subindex This subindex is formed from responses to four survey questions from the Executive Opinion Survey and two forms of hard data (US utility patents granted per million populations and gross tertiary enrollment rate). Higher values indicate more innovation in the country. The questions are the following: • Company Spending on R&D (2003-2007). Average of responses to the question: Companies in your country (1= do not spend money on research and development, 7= spend heavily on research and development relative to international peers). • Technological readiness (2004-2006). Average of responses to the question: Your country’s level of technological readiness (1=generally lags behind most other countries, 7= is among the world leaders). • Firm level technology adoption (2003-2006). Average of responses to the question: Companies in your country are (1= not able to absorb new technology, 7= aggressive in absorbing new technology). • University/industry research collaboration (2003-2006). 7 Average of responses to the question: In its R&D activity, business collaboration with local universities is (1=minimal or nonexistent, 7= intensive and ongoing). Table 3. Innovation Subindex: Components and Index Summary Mean 3.386 SD. 0.813 Obs. 130 Min. 1.8 Max. 6.0 3.788 1.266 126 1.5 6.5 Firm level technology absorption University/industry research collaboration US utility patents 4.729 0.737 126 3.2 6.6 3.116 0.935 120 1.7 5.7 0.477 1.257 126 0 7 Tertiary enrollment rate 2.524 1.902 120 0.02 7 Innovation subindex 2.641 1.144 120 1.31 6.5 Company spending on R&D Technological readiness Table 4. Innovation Sub-index: Components and Index Correlations with p-values Company spending on R&D Company spending on R&D Technological readiness Firm level technology absorption University/industry research collaboration Technologic al readiness Firm level technology absorption University/ind ustry research collaboration 1 (0) 0.534*** (0.00) 1 (0) 0.503*** (0.00) 0.891*** (0.00) 1 (0) 0.662*** (0.00) 0.813*** (0.00) 0.774*** (0.00) 1 (0) 0.648*** (0.00) Tertiary enrollment 0.444*** rate (0.00) Innovation 0.574*** subindex (0.00) ***p<0.01 **p<0.05 0.647*** (0.00) 0.632*** (0.00) 0.769*** (0.00) 0.638*** (0.00) 0.527*** (0.00) 0.667*** (0.00) 0.719*** (0.00) 0.657*** (0.00) 0.756*** (0.00) US utility patents 8 US utility patents 1 (0) 0.476*** (0.00) 0.765*** (0.00) Tertiary enrollment rate 1 (0) 0.833*** (0.00) 2.6.1. FDI and technology transfer fditecnotransfprom: FDI and Technology Transfer (GCR, 2002, 2004, 2005, 2006, 2008). Average of responses to the question: Foreign direct investment in your country: (1 = brings little new technology; 7 = is an important source of new technology). 2.6.2. Firm absorption of technology firmabsortprom: Firm Absorption of Technology (GCR, 2003-2006). Average of responses to the question: Companies in your country are: (1 = not able to absorb new technology; 7 = aggressive in absorbing new technology). 2.6.3. Impact of rules on FDI impactrulesfdiprom: Impacts of Rules on FDI (GCR, 2004, 2007). Average of responses to the question: What is the impact of your country’s rules governing foreign direct investment on your business? (1=damaging; 7=beneficial). 2.7. Neutrality of government subsidies: extentdisortgovsubsprom: Extent Disortative Government Subsidies (GCR, 20002002). Average of responses to the question: Government subsidies to business in your country (1=keep uncompetitive industries alive artificially; 7=improve the productivity of industries). 9 2.8. Neutrality of tax system: extenttaxprom: Extent Distortive Tax System(GCR, 2004-2007) Average of responses to the question: The level of taxes in your country: (1=limits incentives to work and invest; 7=has limit impact of those incentives). 2.9. Organized efforts to improve competitiveness effortcompetitivprom: Organized Efforts to Improve Competitiveness (GCR, 2004). Average of responses to the question: Organized efforts to improve competitiveness in your country are: (1= nonexistent; 7= widespread and well coordinated). 2.10. Unions contribution to productivity unioncontribproductprom: Union Contribution to Productivity (GCR, 2001). Average of responses to the question: "Labor unions in your country (1=prevent productivity improvements, 7=contribute to productivity improvements)" 2.11. Policy index gcr_policyindex: GCR Policy Index The index is based in the average of values for the variables infrastructure quality, credit index, extent and effect of taxation, extent of distortive government subsidies, burden of government regulation, efforts to improve competitiveness and informal sector.3 3 Note: The variable informal sector was rescaled so as to vary from 1 to 7 instead of from 1 to 9. 10 gcr_policyindexb: GCR Policy Index b The index is based in the average values of the variables infrastructure quality, credit index, extent and effect of taxation, burden of government regulation, efforts to improve competitiveness and informal sector. In this case we didn’t include the variable “extent of distortive government subsidies” due to the low number of observations available (80 observations). Table 5. GCR Policy Index: Components and Index Summary Mean SD. Obs. Min. Max. Burden of government regulation Credit Index 4.116 0.890 104 2.4 6.3 3.180 0.865 127 1.85 5.275 Efforts to improve competitiveness Extent and effect of taxation 3.917 0.736 101 2.2 5.8 3.497 0.961 128 1.64 6.16 Extent of distortive government subsidies Informal sector 3.55 0.767 82 2 5.867 3.745 0.758 123 2.48 6.2 Infrastructure quality 3.772 1.403 129 1.3 6.73 GCR policy index 3.586 0.546 79 2.55 5.16 GCR policy index b 3.544 0.553 79 2.56 5.06 11 Table 6. GCR Policy Index: Components and Index Correlations with p-values Burden of government regulation Burden of government regulation Credit Index Efforts to improve competitiveness Extent and effect of taxation Extent of distortive government subsidies Infrastructure quality Informal sector GCR Policy Index GCR Policy Index b 1 (0) 0.714*** (0.00) 0.650*** (0.00) 0.514*** (0.00) 0.706*** (0.00) 0.727*** (0.00) -0.724*** (0.00) 0.798*** (0.00) 0.767*** (0.00) Credit Index 1 (0) 0.559*** (0.00) 0.409*** (0.00) 0.624*** (0.00) 0.860*** (0.00) -0.656*** (0.00) 0.807*** (0.00) 0.799*** (0.00) Efforts to improve competitiveness Extent and effect of taxation 1 (0) 0.542*** (0.00) 0.589*** (0.00) 0.623*** (0.00) -0.609*** (0.00) 0.843*** (0.00) 0.841*** (0.00) 1 (0) 0.396*** (0.00) 0.407*** (0.00) -0.327*** (0.00) 0.616*** (0.00) 0.630*** (0.00) ***p<0.01 **p<0.05 12 Extent of distortive government subsidies 1 (0) 0.558*** (0.00) -0.561*** (0.00) 0.758*** (0.00) 0.663*** (0.00) Infrastructure quality Informal sector 1 (0) -0.668*** (0.00) 0.836*** (0.00) 0.838*** (0.00) 1 (0) -0.797*** (0.00) -0.787*** (0.00) GCR Policy Index b 1 (0) 0.990*** (0.00) 3. Articulation of the private sector The PMP can be understood as a process of bargains and exchanges among political actors. Some of these exchanges are consummated instantly, but in many other cases current actions or resources are exchanged for promises of future actions or resources (they are intertemporal transactions). The type of transaction that political actors are able to engage in will depend on the possibilities provided by the institutional environment. Issues of credibility and the capacity to enforce political and policy agreements are crucial for political actors to be able to engage in intertemporal transactions. The variables that we include in this section are the following: 3.1. Bribes for influencing policies bribespoliciesprom: Bribes for Influencing Policies (GCR, 2003-2007). Average of responses to the question: In your industry, how commonly would you estimate that firms make undocumented extra payments or bribes connected with influencing laws and policies, regulations, or decrees to favor selected business interests? (1=common; 7=never occurs). 3.2. Centralization of economic policymaking centralizpmpprom: Centralization of Policy-Making (GCR, 2004-2007). Average of responses to the question: Economic policymaking in your country is: (1=centralized at the national level; 7=decentralized at the state and city level). 13 3.3. Diversion of public funds publicdiversprom: Diversion of Public Funds (GCR, 2002-2006). Average of responses to the question: In your country, diversion of public funds to companies, individuals, or groups due to corruption: (1=is common; 7=never occurs). 3.4. Efficiency of legal framework eficlegalfwkprom: Efficiency of legal framework (GCR, 2002-2007). Average of responses to the question: The legal framework in your country for private business to settle disputes and challenge the legality of government actions or regulation is: (1=inefficient and subject to manipulation, 7=efficient). 3.5. Extent bureaucratic red tape extentbureaucratprom: Extent Bureaucratic Red Tape (GCR, 2002-2008). Average of responses to the question: How much time your firm spend dealing with government official? (1=0%; 2=1-10%; 8=81-100%). 3.6. Favoritism in government decisions favoritismprom: Favoritism Government Officials (GCR, 2001-2008). Average of responses to the question: When deciding upon policies, government officials: (1=usually favor well connected firms; 7=are neutral). 14 3.7. Illegal donations to political parties illegaldonatpartyprom: Illegal Donations to Political Parties (GCR, 2002, 2003, 2004, 2006). Average of responses to the question: How common are illegal donations to political parties in your country?” (1=common; 7=rare). 3.8. Index of irregular payments indexirregpaym: Index of Irregular Payments Higher values indicate the existence of less irregular payments in the country. The index or irregular payments (indexirregpaym) was created based in the following sources: • Irregular payments in exports and imports (2003-2006). Average of responses to the question: In your industry, how commonly would you estimate that firms make undocumented extra payments or bribes connected with export and import permits? (1= common; 7= never occurs). • Irregular payments in judicial decisions (2003-2006). Average of responses to the question: In your industry, how commonly would you estimate that firms make undocumented extra payments or bribes connected with getting favorable judicial decisions? 1= common; 7= never occurs. • Irregular payments in loan applications (2002 and 2004). 15 Average of responses to the question: In your industry, how commonly would you estimate that firms make undocumented extra payments or bribes connected with loan applications? 1 = common; 7 = never occurs. • Irregular payments in public contracts (2003-2006). Average of responses to the question: In your industry, how commonly would you estimate that firms make undocumented extra payments or bribes connected with public contracts (investment projects) 1= common; 7= never occur. • Irregular payments in public utilities (2003-2006). Average of responses to the question: In your industry, how commonly would you estimate that firms make undocumented extra payments or bribes when getting connected to public utilities e.g. telephone or electricity? 1= common; 7= never occurs. • Irregular payments in tax collections (2003-2006). Average of responses to the question: In your industry, how commonly would you estimate that firms make undocumented extra payments or bribes connected with annual tax payments? 1 = common; 7 = never occurs. 16 Table 7. Index Irregular Payments: Components and Index Summary Irregular payments exports and imports Irregular payments judicial decisions Irregular payments loan applications Irregular payments public contracts Irregular payments public utilities Irregular payments tax collection Index irregular payments Mean 4.666 SD. 1.094 Obs. 128 Min. 2.35 Max. 6.58 4.527 1.249 128 2.00 6.85 5.017 0.984 105 2.8 6.8 4.046 1.080 128 2.0 6.58 5.047 1.100 128 1.95 6.88 4.88 1.040 128 2.05 6.90 4.67 1.028 128 2.41 6.64 Table 8. Index Irregular payments: Components and Index Correlations with pvalues Irregular payments exports and imports Irregular payments 1 exports and imports (0) Irregular payments 0.877*** judicial decisions (0.00) Irregular payments 0.915*** loan applications (0.00) Irregular payments 0.938*** public contracts (0.00) Irregular payments 0.835*** public utilities (0.00) Irregular payments 0.809*** tax collection (0.00) Index irregular 0.957*** payments (0.00) ***p<0.01 **p<0.05 Irregular payments judicial decisions Irregular payments loan applications Irregular payments public contracts Irregular payments public utilities 1 (0) 0.8434*** (0.00) 0.907*** (0.00) 0.787*** (0.00) 0.801*** (0.00) 0.938*** (0.00) 1 (0) 0.904*** (0.00) 0.877*** (0.00) 0.866*** (0.00) 0.950*** (0.00) 1 (0) 0.814*** (0.00) 0.778*** (0.00) 0.951*** (0.00) 1 (0) 0.836*** (0.00) 0.914*** (0.00) Irregular payments tax collection 1 (0) 0.899*** (0.00) 3.9. Legal donations to political parties legaldonatpartyprom: Legal Donations To Political Parties (GCR, 2002, 2003, 2004, 2006). 17 Average of responses to the question: To what extent the legal donations to political parties have a direct influence on the public policies? (1=there is a direct relation between donations and policies; 7=there isn’t a direct impact on the influence on policies). 4. Characteristics of economic actors The behavior of various actors in the PMP will depend on their basic incentives (e.g., electoral, power building, job security in the case of state managers, and economic benefits in the case of social actors) as well as on the exchange possibilities provided by institutions and real actors’ characteristics. Murillo et al. (2008) analyzed the formation process of real actors’ interests and emphasized the importance of considering these principal factors when studying the real actors’ influence in the policy formation: economic structure, group size, sectoral division, aggregation level, and political and market incorporation. These factors affect the behavior of the actors, influencing the way they organize, their ability to coordinate, and the articulation with the public sector. This is relevant because it determines their demands. For example, large infrastructure works require the coordinated demand of multiple actors in order to be implemented. If those potentially interested are spread out, the probability of it would be lower. Similarly occurs regarding the way they can articulate with the public sector and the type of influence they gain. Those that have access to the local government may be able to exert different pressures than those that have access to the national level agencies. Here, only some distant proxies are provided and further work is encouraged. 18 4.1. Extent of Market Dominance extentmarketdominprom: Extent of Market Dominance (GCR, 2006-2007). Average of responses to the question: Corporate activity in your country is: (1 = dominated by a few business groups; 7 = spread among many firms). 4.2. Intensity of Local Competition localcompetprom: Intensity of Local Competition (GCR, 2004, 2005, 2008). Average of responses to the question: In most industries, competition in the local market is: (1=limited and price-cutting is rare, 7=intense and market leadership changes over time). 4.3. Prevalence of Foreign Own prevalencforeignownprom: Prevalence of Foreign Own (GCR, 2008). Average of responses to the question: Foreign ownership of companies in your country is: (1 = rare and limited; 7 = prevalent and encouraged). 5. Additional variables The database is complemented with economic variables that are useful for running the empirical exercises. 5.1. Productivity variables (Daude & Fernández-Arias, 2008) 5.1.1. TFP level tfplevel: Level of TFP (2000-2005). 19 5.1.2. TFP growth growthtfp: Growth of TFP (2000-2005). 5.2. WDI (World Development Indicator) variables 5.2.1. Central government debt (% GDP) cgdtpgdprom: Central Government Debt (%GDP) (WDI, 2000-2005). 5.2.2. Central government debt (current LCU) cgdtculcuprom: Central Government Debt (current LCU) (WDI, 20002005). 5.2.3. Domestic credit to private sector (% GDP) dcpspgdprom: Domestic credit to private sector (%GDP) (WDI, 20002007). 5.2.4. Exports plus Imports (% GDP) tpgdpprom: Exports plus Imports (% GDP) (WDI, 2000-2007). 5.2.5. GDP per capita 1990 lngdppc90: GDP per capita 1990 (in logs) 5.2.6. GDP per capita 1980 lngdppc80: GDP per capita 1980 (in logs) 5.2.7. Surface of the country lnsurfaceprom: Surface of the country (thousand of km) 5.2.8. Public spending on education publicspendeducprom: Public Spending on Education (%GDP) (WDI, 2000-2002). 20 5.2.9. Secondary school enrollment (% gross) sespgprom: Secondary school enrollment (% gross) (WDI, 2000-2006). 6. Robustness Checks In order to ensure that the new data collected is reliable, we have ran a number of checks with available “hard data” to examine whether by using survey data we are measuring the desired public policies and their effects. Administrative burden for startups: Administrative burden for startups Number of procedures to start a business (Doing Business) -0.492*** (0.00) Ease to start a business index (Doing Business) -0.533*** (0.00) Observations 101 96 Private Credit/GDP (WDI) 0.489*** (0.00) Ease Getting Credit (Doing Business) -0.554*** (0.00) 44 121 Credit Index: Credit Index Observations Extent of market dominance: Extent of market dominance Number of firms (Dun & Bradstreet), Mitton 2008 0.598*** (0.00) Number of firms (Worldscope), Mitton 2008 0.447*** (0.00) Observations 51 90 21 Informal Sector: Shadow Economy (% GDP), Schneider 2005 0.713*** (0.00) Informal sector Observations 98 Infrastructure quality: Infrastructure quality Roads Paved (% Total roads), WDI 0.589*** (0.00) Internet Users (per 1000 people), WDI 0.808*** (0.00) 96 114 Observations Innovation subindex: Innovation subindex Research and development expenditure (%GDP), WDI 0.775*** (0.00) Research in R&D (per million people) 0.778*** (0.00) 84 59 Observations Extent and effect of tax: Highest marginal tax rate, individual rate (%), WDI -0.425*** (0.00) Ease Paying Taxes (Doing Business) Extent and effect of taxation Highest marginal tax rate, corporate rate (%), WDI -0.494*** (0.00) Observations 103 100 122 22 -0.487*** (0.00) Bibliography Acemoglu, D., Johnson, S. & Robinson, J. 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