politics, policies, and productivity: an international dataset

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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: [email protected] 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.

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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

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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).

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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 perception-

based 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.

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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

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Table 2. Credit Index: Components and Index Correlations with p-values

Capital Availability Access to loans

Capital Availability 1 (0)

Access to loans 0.931*** (0.00)

1 (0)

Credit Index 0.967*** (0.00)

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).

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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).

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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 SD. Obs. Min. Max. Company spending on R&D

3.386 0.813 130 1.8 6.0

Technological readiness 3.788 1.266 126 1.5 6.5

Firm level technology absorption

4.729 0.737 126 3.2 6.6

University/industry research collaboration

3.116 0.935 120 1.7 5.7

US utility patents 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

Table 4. Innovation Sub-index: Components and Index Correlations with p-values

***p<0.01 **p<0.05

Company spending on

R&D

Technological readiness


University/industry research collaboration

US utility patents

Tertiary enrollment

rate

Company spending on R&D

1 (0)

Technological readiness

0.534*** (0.00)

1 (0)


0.503*** (0.00)

0.891*** (0.00)

1 (0)

University/industry research

collaboration

0.662*** (0.00)

0.813*** (0.00)

0.774*** (0.00)

1 (0)

US utility patents 0.648*** (0.00)

0.647*** (0.00)

0.638*** (0.00)

0.719*** (0.00)

1 (0)

Tertiary enrollment rate

0.444*** (0.00)

0.632*** (0.00)

0.527*** (0.00)

0.657*** (0.00)

0.476*** (0.00)

1 (0)

Innovation subindex

0.574*** (0.00)

0.769*** (0.00)

0.667*** (0.00)

0.756*** (0.00)

0.765*** (0.00)

0.833*** (0.00)

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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, 2000-

2002).

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).

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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.

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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

4.116 0.890 104 2.4 6.3

Credit Index 3.180 0.865 127 1.85 5.275

Efforts to improve competitiveness

3.917 0.736 101 2.2 5.8

Extent and effect of taxation 3.497 0.961 128 1.64 6.16

Extent of distortive government subsidies

3.55 0.767 82 2 5.867

Informal sector 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

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Table 6. GCR Policy Index: Components and Index Correlations with p-values

***p<0.01 **p<0.05

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 b Burden of government regulation

1 (0)

Credit Index 0.714*** (0.00)

1 (0)

Efforts to improve competitiveness

0.650*** (0.00)

0.559*** (0.00)

1 (0)

Extent and effect of taxation 0.514*** (0.00)

0.409*** (0.00)

0.542*** (0.00)

1 (0)

Extent of distortive government subsidies

0.706*** (0.00)

0.624*** (0.00)

0.589*** (0.00)

0.396*** (0.00)

1 (0)

Infrastructure quality 0.727*** (0.00)

0.860*** (0.00)

0.623*** (0.00)

0.407*** (0.00)

0.558*** (0.00)

1 (0)

Informal sector -0.724*** (0.00)

-0.656*** (0.00)

-0.609*** (0.00)

-0.327*** (0.00)

-0.561*** (0.00)

-0.668*** (0.00)

1 (0)

GCR Policy Index 0.798*** (0.00)

0.807*** (0.00)

0.843*** (0.00)

0.616*** (0.00)

0.758*** (0.00)

0.836*** (0.00)

-0.797*** (0.00)

1 (0)

GCR Policy Index b 0.767*** (0.00)

0.799*** (0.00)

0.841*** (0.00)

0.630*** (0.00)

0.663*** (0.00)

0.838*** (0.00)

-0.787*** (0.00)

0.990*** (0.00)

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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).

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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).

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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).



connected with getting favorable judicial decisions? 1= common; 7= never

occurs.

• Irregular payments in loan applications (2002 and 2004).

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connected with loan applications? 1 = common; 7 = never occurs.

• Irregular payments in public contracts (2003-2006).



connected with public contracts (investment projects) 1= common; 7= never

occur.

• Irregular payments in public utilities (2003-2006).


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).



connected with annual tax payments? 1 = common; 7 = never occurs.

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Table 7. Index Irregular Payments: Components and Index Summary

Mean SD. Obs. Min. Max. Irregular payments exports and imports

4.666 1.094 128 2.35 6.58

Irregular payments judicial decisions

4.527 1.249 128 2.00 6.85

Irregular payments loan applications

5.017 0.984 105 2.8 6.8

Irregular payments public contracts

4.046 1.080 128 2.0 6.58

Irregular payments public utilities

5.047 1.100 128 1.95 6.88

Irregular payments tax collection

4.88 1.040 128 2.05 6.90

Index irregular payments 4.67 1.028 128 2.41 6.64

Table 8. Index Irregular payments: Components and Index Correlations with p-values

***p<0.01 **p<0.05

3.9. Legal donations to political parties

legaldonatpartyprom: Legal Donations To Political Parties (GCR, 2002, 2003, 2004,

2006).

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

Irregular payments exports and imports

1 (0)

Irregular payments judicial decisions

0.877*** (0.00)

1 (0)

Irregular payments loan applications

0.915*** (0.00)

0.8434*** (0.00)

1 (0)

Irregular payments public contracts

0.938*** (0.00)

0.907*** (0.00)

0.904*** (0.00)

1 (0)

Irregular payments public utilities

0.835*** (0.00)

0.787*** (0.00)

0.877*** (0.00)

0.814*** (0.00)

1 (0)

Irregular payments tax collection

0.809*** (0.00)

0.801*** (0.00)

0.866*** (0.00)

0.778*** (0.00)

0.836*** (0.00)

1 (0)

Index irregular payments

0.957*** (0.00)

0.938*** (0.00)

0.950*** (0.00)

0.951*** (0.00)

0.914*** (0.00)

0.899*** (0.00)

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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.

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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).

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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, 2000-

2005).

5.2.3. Domestic credit to private sector (% GDP)

dcpspgdprom: Domestic credit to private sector (%GDP) (WDI, 2000-

2007).

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).

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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:

Credit Index: Extent of market dominance:

Number of procedures to start a business

(Doing Business) Ease to start a business index (Doing Business)

Administrative burden for startups

-0.492*** (0.00)

-0.533*** (0.00)

Observations 101 96

Private Credit/GDP

(WDI) Ease Getting Credit (Doing Business)

Credit Index

0.489*** (0.00)

-0.554*** (0.00)

Observations 44 121

Number of firms (Dun & Bradstreet), Mitton 2008

Number of firms (Worldscope), Mitton

2008 Extent of market

dominance 0.598***

(0.00) 0.447***

(0.00)

Observations 51 90

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Informal Sector: Infrastructure quality: Innovation subindex: Extent and effect of tax:

Shadow Economy (% GDP),

Schneider 2005 Informal sector

0.713***

(0.00) Observations 98

Roads Paved (% Total

roads), WDI Internet Users (per 1000

people), WDI Infrastructure quality

0.589***

(0.00) 0.808***

(0.00) Observations 96 114

Research and development expenditure

(%GDP), WDI Research in R&D (per

million people) Innovation subindex

0.775***

(0.00) 0.778***

(0.00) Observations 84 59

Highest marginal tax rate, corporate rate

(%), WDI

Highest marginal tax rate, individual rate

(%), WDI

Ease Paying Taxes (Doing Business)

Extent and effect of taxation

-0.494*** (0.00)

-0.425*** (0.00)

-0.487*** (0.00)

Observations 103 100 122

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