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Poor Places, Thriving People
BOX 4.2
An Entrepreneur’s Experience of Spatial Disparities in the Business Environment “I wanted to create a small center of Internet and video games. I could provide a little money as personal financing. So I presented an application for credit to banks of the town of Kasserine to finance my project so that I could settle in Thala or Kasserine. Unfortunately, all my requests were refused. I came to Tunis, and I settled in with cousins in Ettadhamoun [a low-income area in Tunis]. I presented the same request, and it was accepted.” Source: A 35-year-old unemployed graduate from the lagging area of Kasserine, Tunisia.
conclude, “Most of the existing work on the relationship between institutions and growth assumes that the important institutions are constant within a country. The empirical link that we establish between investment climate indicators and firm performance . . . reveals that there is significant variation in the investment climate across locations within countries. So, local governance is important.” A study of India (Lall and Mengistae 2005) again finds that within-country differences in the institutional environment (represented by labor regulations and access to reliable electric power) explain a greater share of the variation in firm productivity than economic geography (agglomeration effects plus market access). Indeed, cities in locations with poor market access seem to receive the biggest productivity boost from a good institutional environment. Figure 4.2 presents a composite index of the subnational investment climate for Algeria, the Arab Republic of Egypt, Jordan, Morocco, and the West Bank and Gaza. The index uses Investment Climate Survey (ICS) indicators that are common to all economies and are objectively quantifiable. National-level conditions remain important; the Algerian subnational indicators cluster toward the bottom end of the range, the Jordanian and Palestinian indicators are grouped in midrange, and the Moroccan indicators are toward the top. However, the range of within-country investment climate variation is quite large in Algeria. And it is particularly striking for Egypt, where it stretches almost from the bottom to the top of the measured range. It is possible that the range of within-country variation would also have been significantly larger for Morocco had a greater number of locations been surveyed. The data for MENA economies are often insufficient to measure the impact of subnational investment climate disparities on enterprise performance. One of the reasons is that enterprise survey responses usually represent a narrow range of locations. Another is that multiple independent datasets are needed to separate different kinds of location-specific