Synthesis documents

Development Outreach: A Better Investment Climate for Everyone, WBI, March 2005

    The World Development Report 2005 that was released last fall drew attention to the importance of improving the investment climate - especially in the developing world, where 1.2 billion people barely survive on less than $1 a day. It argued that improving the investment climate of their societies should be a top priority for governments, because firms and entrepreneurs of all types can play a key role in growth and poverty reduction.

    Development OUTREACH has asked the leaders of the WDR 2005 team Warrick P. Smith and Mary C. Hallward-Driemeier, to put together the special report featured in this issue in order to provide comments by world-renowned specialists on the issues raised in the WDR 2005 and expand the discussion beyond its parameters.

    The articles included in the Special Report, while reinforcing the idea that private firms, from micro-enterprises to multinationals, provide the foundation for growth and prosperity, also emphasize the need for governments to make the investment climate beneficial to everyone. For example, Raj M. Desai and Sanjay Pradhan argue that 'an investment climate must be judged not by how much it helps corporations, but by the tangible benefits it brings to citizens.' Too often, they maintain, rules designed to empower the private sector result in high levels of corruption, which is ultimately destructive to the country's economy. Dani Kaufmann, too, focuses on the governance issues that may impair an investment climate.

    On the other hand, using specific country examples and emerging lessons, other authors show how government interventions benefiting SMEs and informal firms can have a positive impact on society by increasing employment and providing services. Overall, the message of this special report confirms the findings of the WDR 2005, namely that a well managed investment climate must include a two-pronged strategy: reform policies that remove constraints impairing the performance of both small and large firms, and measures that ensure opportunities for all citizens.

    Sunetra Puri
    Executive Editor