Einstitute.worldbank.org Improving City Competitiveness City Management and Business Climate April 12, 2012 | 10:00 AM EST Speaker: Stanley Nollen Professor,

einstitute.worldbank.org

Improving City Competitiveness City Management and Business Climate

April 12, 2012 | 10:00 AM EST

Speaker: Stanley Nollen

Professor, Georgetown University

McDonough School of Business

2

What Do City Leaders Want for Their Residents?

Employment Quality of life

Income

3

How Can City Leaders Get These Outcomes?o Attract investment

We focus on foreign direct investment in emerging market economies

- developed country economies behave somewhat differently

- similar arguments apply for domestic investment

We acknowledge potential downsides of foreign investment but do not discuss them here

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What Motivates Business to Make Investments Abroad?

o Reduce costs and build an export platform

o Serve the domestic market

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To Achieve These Objectives, Business Managers’ Decisions Depend on

o Input supply conditions: prices, productivity, complementary inputs, clusters

o Markets: size and functioning

o Business/Investment climate: infrastructure, institutions, government, competitive landscape

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What Experience Tells Us – 1How Managers Make Foreign Direct Investment Decisions and Decide to Locate Production Abroad

o Wage rate for labor is not the best indicator of attractiveness- do low wages mean low skill?

- do low wages mean low productivity?

- unit cost of production is what matters

(wage ● labor input) / output

o Bigger and faster growing markets are important for all investment decisions, even those whose purpose is exporting

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What Experience Tells Us – 1 (continued)How Managers Make Foreign Direct Investment Decisions and Decide to Locate Production Abroad

o Clusters are important- other firms in the same

industry or from the same country

- informal networks for knowledge-sharing

- expanded labor pool

- better supply chain for inputs and distribution

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What Experience Tells Us - 2How Managers Make Foreign Direct Investment Decisions and Decide to Locate Production Abroad

o Infrastructure is critical-what it is (roads, rails, ports, power, telecom, water) depends on

the industry

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o Government makes a difference- government policies (e.g., SEZs, industrial

parks)

- governance quality – services provided

- regulation that is reasonable but not burdensome

- financial incentives are not very effective

- local government matters as well as central government

What Experience Tells Us – 2 (continued)How Managers Make Foreign Direct Investment Decisions and Decide to Locate Production Abroad

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Which Are the Most Competitive Cities …

Rank City

In China

1 Hangzhou

2 Shanghai

3 Guangzhou

4 Shenzhen

5 Chongqiang

Rank City

In Emerging Market Economies1 Singapore

2 Hong Kong

3 Seoul

4 Taipei

5 Shanghai

Rank City

Worldwide

1 London

2 New York

3 Tokyo

4 Chicago

5 Paris

Sources: China: Dollar et al 2003; Emerging Market Economies and Worldwide: Mastercard 2008

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Which Are the Most Competitive Cities in China? It Depends on

> Who Evaluates> Criteria Used

CityRank

(Dollar Overall)

Rank(Mastercard Emerging Markets)

Rank (Mastercard Worldwide)

Hangzhou 1 10 too low to show

Shanghai 2 1 1

Guangzhou 5 3 too low to show

Shenzhen 4 3 3

Chongqiang 6 12 5

Sources: China: Dollar et al 2003; Emerging Market Economies and Worldwide: Mastercard 2008

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Which Countries Have the Best Business Climate?

RankTop 10

RankTop Emerging Market Economies

1 Singapore 1 Singapore

2 New Zealand 2 Hong Kong

3 Hong Kong 3 Georgia

4 United States 4 Thailand

5 United Kingdom 5 Saudi Arabia

6 Denmark 6 Mauritius

7 Ireland 7 Korea (South)

8 Canada 8 Bahrain

9 Australia 9 Malaysia

10 Norway 10 South Africa

Source: World Bank, Doing Business 2009

China is 14th among emerging market economies, 89th worldwide

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Lessons LearnedWhat City Leaders Can Do to Improve Their City’s Competitiveness

o A city’s competitiveness does not depend only on the country in which it is

-City leaders have scope to make a difference

o There is no single list of features that a city needs to be competitive

- industries’ needs differ, so city strengths can differ- one city’s competitive strengths need not emulate another's- no city meets all the criteria for competitiveness … but

o The short list of what is always important generally includes- good government

- Infrastructure

- Human capital

- Functioning of markets and institutions