Investment climate and international integration

Drawing on recently completed firm-level surveys in Bangladesh, Brazil, China, Honduras, India, Nicaragua, Pakistan, and Peru, this paper investigates the relationship between the investment climate and international integration. These standardized surveys of large, random samples of firms in common sectors reveal how firms experience bottlenecks and delays in hard infrastructure such as power and telecom as well as in soft infrastructure such as customs administration. We focus primarily on measures of the time or monetary cost of different bottlenecks (e.g., days to clear goods through customs, sales lost to power outages). For many of these costs, the obstacles are lower in China than in the South Asian or Latin American countries. There is also a systematic variation across cities within countries. We estimate a probit function for the probability that a randomly chosen firm is an exporter and a separate probit for the probability that a randomly chosen firm is foreign invested. These measures of international integration are higher where the investment climate is better.