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The rural investment climate: analysis and findings

1 Jan 2008

Interest in investment climates has emerged relatively recently. In the 1960s and 1970s, governments in many countries believed they should play a direct role in rural credit, input supply, production, trade, transport, distribution, and even marketing. However, in the 1980s and 1990s, government-dominated systems fell into disgrace because of poor performance. For the rural sector, the primary focus had traditionally been on agriculture, particularly commercial agriculture and agribusiness, which were perceived to be the main drivers of rural growth. This study's essential findings and policy implications are organized into the following six chapters. Annexes provide supporting material. Chapter two presents an overview of related work and of the literature; it also describes the subsequent chapters' methodological framework, including new ways of addressing questions of endogeneity in these kinds of surveys while seeking to isolate cause and effect. Chapter three, by applying econometric analysis, measurably extends the examination of enterprise performance and investment climate constraints initiated in RIC1 (first rural investment climate). A rigorous examination of enterprise dynamics and entrepreneurial choice is developed in chapter four. Aiming to highlight the differing effects on Rural Nonfarm Enterprises (RNFEs), chapter five draws together the main implications RIC2 findings on the rural investment climate in the three country pilots. Community-level influences also matter, and chapter six examines how the local IC and other community characteristics shape the environment for economic activity. Conclusions and recommendations appear in chapter seven, including suggestions for using RIC results for policy reform and for targeting the rural public expenditures needed to foster improvements in the rural investment climate. The annexes describe the databases employed and the methodologies used in the study, as well providing detailed regression results.

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