Economic Security, Private Investment, and Growth in Developing CountriesWP/98/4-EAWP/98/4 .Economic Security, Private Investment, and Growth in Developing Countries. Hélène Poirson, , , , and , summary This paper provides empirical support for the view that enhanced economic security fosters private investment and growth in developing countries, based on an analysis of economic security ratings for 53 developing countries during 1984-95. The paper shows that most aspects of economic security have improved significantly, contributing to private investment and economic growth. The implied gains from institutional reforms to improve economic security are significant. The empirical results suggest that reforms to improve economic security in specific developing country regions to .best practices. in other developing country regions could raise private investment by ½ to 1 percentage point of GDP in the short to medium term. In the longer term, the payoff in real economic growth could be on the order of ½ to 1¼ percent a year. The results suggest the following key areas for institutional reforms in developing regions: In Africa, the priorities are to reduce the risks of expropriation in order to raise private investment and improve the efficiency of resource allocation; to reduce corruption and the risks of contract repudiation by government in order to raise longer-term growth prospects; and to increase the scope of civil liberties and the quality of the bureaucracy in order to raise private sector confidence. In Asia, the priorities are to increase civil liberties to further boost private sector confidence, and to reduce corruption to raise longer-term growth prospects. In the Western Hemisphere, the priorities are to improve the quality of the bureaucracy in order to allow a further rise in private investment, and to reduce corruption to raise longer-term growth prospects. Finally, in the Middle East and Europe, the priority is to increase civil liberties to further boost private sector confidence. |