Overview
The private sector drives economic growth by creating valuable goods and services, supported by government funding and infrastructure. The Development Impact Group’s Private Sector and Economic Growth Program (Development Impact Group Private Sector) aims to transform the private sector, fostering productive businesses, better jobs, and sustainable economic growth. The Development Impact Group approaches the private sector as a key player to help increase economic prosperity and solve local and global challenges.
Themes
Development Impact Group Private Sector currently works across three areas – with cross-cutting consideration to gender – where evidence is most urgently needed:
Climate Change Adaptation and Mitigation
Effective implementation of climate policies targeting the private sector is crucial for meeting emission-reduction targets, yet how to do so remains uncertain. The Development Impact Group's Private Sector research explores the necessary institutional arrangements and oversight for policy compliance, evaluates distributional implications, and examines pathways for transitioning to low-carbon industries. It also investigates the private sector's role in greenhouse gas emissions, finance, innovation, and job creation for fostering low-carbon growth. In Brazil, The Development Impact Group studies the effect of climate conditionalities on commercial loans for promoting green investments.
New climate regulations rely on firm compliance, but limited state oversight may hinder effectiveness. Previous Development Impact Group work in Benin and Senegal informs new work on procedural reforms to improve compliance in Central Africa and East Asia (Goldstein, et al., 2018; Kondylis and Stein, 2021). Additionally, the Development Impact Group and Climate Investment Fund (CIF) partnership explores business incentives for low-carbon transitions and reducing labor market frictions.
Access to Markets
Removing trade barriers and promoting market linkages can foster new and improved value changes, but more evidence is needed to understand which policies work and why. The Development Impact Group produces diagnostics to identify trade barriers and costs for firms accessing new markets.
In Latin America, ongoing work on non-tariff barriers assesses the impact of quality standards and labeling requirements on exporters and domestic producers. The Development Impact Group also collaborates closely with trade facilitation projects to effectively target and eliminate identified barriers. In Ecuador and Honduras, the Development Impact Group examines how large firms influence networks of small suppliers, emphasizing the need to balance buyer growth with ensuring profits reach suppliers, crucial for designing competition policies.
Expanding digital tools for market access is key. Partnered with e-commerce platforms, the Development Impact Group assists small- and medium-sized firms in Georgia and Kenya with tackling obstacles that hinder market expansion. Results across contexts underscore the importance of enhancing firm capabilities to capitalize on digital tools and improved trading environments.
Government-to-Business Relations
Tax policy and procurement rules can be potent instruments for industrial policy, but they risk introducing market distortions and limiting fiscal space. The Development Impact Group evaluates the influence of general tax policies and targeted interventions, such as exemptions, subsidies, and preferential procurement, on firm performance and market efficiency. Recent projects investigate how Value Added Tax (VAT) refund policies affect firm growth and supplier networks within specialized economic zones (SEZs) in Honduras. Findings highlight the balance between fiscal incentives for job creation and associated costs like market distortion and fiscal resources. Additionally, data-driven interventions aiming to improve justice efficiency are evaluated for their positive impact on firm performance in Chile and Kenya.
Gender
Supporting an inclusive private sector is crucial for increasing the agency of women and other marginalized groups, as the Development Impact Group’s cross-cutting work shows. Providing paid employment opportunities to women increases their control over household resources. Empowering women alone is not enough; local markets also play a key role in sustaining economic gains. In Bangladesh, promoting women enhances their bargaining power within households. In addition, a new Development Impact Group project in Brazil is investigating the impacts of female leadership on firm dynamics.
Partnerships
Continuing to find ways to support skills and technology in the private sector is vital for sustainability. The Development Impact Group will focus on pushing the knowledge frontier with a trial-and-adopt approach to identify the most impactful strategies to leverage the private sector’s role to address and support climate change adaptation and mitigation, especially with regards to the preservation and rehabilitation of primary forests. We will work with partners like CIF, the World Bank, and new ones like CAF and local policymakers.
