The Tanzanian economy experienced a significant acceleration over two decades, growing at a compounded annual growth rate of 6% between 1998 and 2018. Within the context of such a positive performance, it is noteworthy that the manufacturing sector did not increase its share of gross domestic product (GDP), which lingered below 10% throughout the same period. The formal manufacturing sector is capital-intensive and highly productive but stagnant, while employment in. This study deploys the Growth Diagnostic framework within Tanzania’s manufacturing sector to promote a better understanding of the reasons why the country has failed to achieve its industrialization goals.The most binding factor constraining returns to investment in manufacturing in Tanzania is the availability and quality of electricity supply. Microeconomic failures such as access to land, labor regulations, and red tape seem particularly relevant for international investors and exporters.The structure of Tanzania’s manufacturing sector today has been shaped by decades of inward-oriented policies. We have uncovered significant evidence suggesting that import substitution (now referred to as “localization”) continues to be at the core of Tanzania’s industrial policy and shapes the incentives for the manufacturing sector today. The subscription to international agreements and trade blocks coexists with an environment that imposes a high regulatory burden on trading industries and restricts trade by means of tariff and non-tariff barriers, achieved by filing numerous exceptions to those treaties to protect individual products and entire domestic industries. Tanzania has managed to develop an inward-oriented manufacturing sector that has made a significant contribution to employment and value added, but remains uncompetitive from an export standpoint. Higher degrees of protection for sub-sectors within manufacturing are associated with higher contributions to value added but lower contributions to exports. Protective policies are biased towards energy and capital-intensive sectors and display a clear anti-export bias. Sectors that enjoy higher levels of protection and represent large shares of value added tend to be more capital intensive and display a moderate-to-high intensity in the use of energy. That, in turn, helps to explain the findings of Diao et al. (2021), who documented that the most productive firms in Tanzania are capital-intensive but do not expand employment, whereas the least productive firms within manufacturing did manage to create employment but at low levels of wages.

Summary Small business growth is critical for economic development and poverty reduction in emerging markets, yet there remains an over $2 trillion gap in financing these entrepreneurs. This study explores the potential of personality assessments to help lenders solve this problem and lend to more entrepreneurs and contributes to psychological selection research by examining the effect of high versus low stakes on response distortions and predictive validity in a new area—entrepreneurship with a new dependent variable—paying back credit. Results of Study 1 show that personality assessments are indeed related to credit risk, but response patterns depend significantly on whether or not the assessment is taken as a mandatory part of the credit application (high stakes) or as an optional research survey after the credit has already been provided (low stakes), and predictive relationships do not generalize between these situations. In Study 2, the distributions of personality dimensions relevant for entrepreneurs applying for a credit—conscientiousness, extraversion, and integrity—are shown to be different for applicants when in high‐ versus low‐stakes settings. These findings convey several implications for the research on and practice of lending to entrepreneurs in emerging markets and offer new directions for future research.

We thank the many individuals who, early on, understood the potential impact of research on economic growth, and shared our team's vision.The generosity of these supporters made this work feasible and now makes it available to individuals, organizations and governments throughout the world.

There is a huge lost opportunity in emerging markets. Between 310 and 380 million of small business owners want loans, and could earn very high rates of return on that additional capital if they could get it. Banks have this capital available, and want to lend it out, particularly to small businesses since competition in that segment is low, unmet demand is high, and the interest rates that can be paid are very attractive. But the connection between the banks and entrepreneurs just isn't happening, because it is extremely difficult for banks to evaluate risk and know who to lend to. The entrepreneurs running these small businesses typically lack credit history and collateral. They don't have well-formatted trustable financial statements, and many of their transactions are with cash. So banks have no means to identify the high-potential, honest entrepreneurs. Lending to small businesses in advanced economies suffered this same problem, until the banks started evaluating and serving small business more like they serve the mass individual segment rather than treating them as mini-corporations. One of the key innovations was to use individual borrowing history of the owner to evaluate risk for the small business loan, applying quantitative credit scoring. This approach lead to a rapid expansion in profitable and sustainable small business lending, because it leveraged what information was available, and did it in a way that kept transaction costs low so that banks could make a large number of smaller loans to businesses. But what can be done in emerging markets, where credit bureaus lack the depth and breadth of coverage?

Access to finance remains a challenge for some micro, small, and medium-sized enterprises (MSMEs) in Peru, particularly informal enterprises with no borrowing history in the formal financial system. Lenders lack the tools to reach these borrowers with sufficient scale and control over risk due in part to the shortcomings of current screening technologies. For this paper, the authors carried out a pilot test of an innovative psychometric tool aimed at evaluating credit risk for business owners seeking a loan from Financiera Confianza, the fourth largest Empresa Financiera in Peru. Applicant responses were compared to self-reported sales, subsequent loan repayment performance, and credit bureau data to determine if psychometric-based credit scoring models could reduce the constraints on MSME finance. The authors created a scorecard based on that information using data from other countries and evaluated its effectiveness on this sample. It achieved a Gini coefficient of between 20 and 40 percent. Those MSMEs rejected by a psychometrically enhanced application scorecard with this Gini coefficient have a probability of defaulting that is up to four times greater than those accepted by the scorecard. Along with other policies to reduce information asymmetry in MSME lending, such a tool could help relieve constraints on MSME finance in Peru.

Access to finance remains a challenge for Small and Medium Enterprises (SMEs) in Argentina. It is a particularly acute problem among newly created SMEs that have a scant credit record and frequently lack collateral. The authors of this paper carried out a pilot test of an innovative psychometric tool aimed at evaluating credit risk among SME clients of Banco Ciudad de Buenos Aires (BCBA), one of the top three public banks of Argentina. SME responses were compared to their historical repayment records to determine if psychometric-based credit scoring models could help ameliorate the constraints to SME finance. A scorecard based on that information and built using international data results in a Gini coefficient between 20 percent and 40 percent: those SMEs rejected by the psychometricbased scorecard with this Gini coefficient have a probability of defaulting that is three to four times greater than those accepted. Along with other policies to reduce information asymmetry in SME lending, such a tool could help relieve constraints to SME finance in Argentina.

The relationship between the informal and formal sectors in developling countries is not yet well understood. This applies especially to entrepreneurship, much of which occurs into the informal sector. In particular, does entrepreneurship at represent a seedbed for new innovation and job creation in emerging markets, with all the positive consequences for employment and economic growth that entrepreneurial activity generates in developed economies? Are there major differences between regions, for example between African countries; transition economies: Asian countries and Latin America? Do financial arrangements matter for informal firms? Do firms that start in the informal sector go on to enter the formal sector at a certain scale, and if so, what triggers the decision to make the investment required to become registered? Can the unregistered sector experience be considered “business schools of the streets” which provide entrepreneurs with experience and skills which they later use to start a formally registered business? There is also an important gender dimension. Doe ifnromal sector firms empower women in developig economies?

Business training is a widely used development tool, yet little is known about its impact. We study the effects of such a business training program held in Central America. To deal with endogenous selection into the training program, we use a regression discontinuity design, exploiting the fact that a fixed number of applicants are taken into the training program based on a pre-training score. Business training significantly increases the probability that an applicant to the workshop starts a business or expands an existing business. Results also suggest gender heterogeneity as well as the presence of financial constraints.

The literature on the relationship between economic diversification and development has grown rapidly in recent years, partly due to the surprising finding that diversification rises with gross domestic product per capita up to a certain point. Export diversification along the extensive margin is inextricable from the introduction of new export products. The authors test the hypothesis that the threat of imitation inhibits the introduction of new exports -- export discoveries -- under the assumption that the intensive and extensive margins of exports are correlated within broad country-industry groups. Econometric evidence from panel-data techniques that are appropriate for count data (the number of discoveries) suggests that discoveries within countries and industries rise with the growth of exports along the intensive margin (relative to the growth of non-export gross domestic product) but the magnitude of this partial correlation increases with domestic barriers to entry and with customs delays in exporting. However, the magnification effect of barriers to entry appears to be less significant as a determinant of total within-country export discoveries. This is consistent with inter-industry and within-country spillovers related to export discoveries, implying that barriers to entry enhance the effect of export growth on discoveries within country-industries but total discoveries might be unaffected by barriers to entry.

The fourth section applies product space data to Algeria’s industrial strategy, using the methodology to identify high-potential export sectors. This data-driven approach has the benefit of systematically scanning the entire set of potential export goods using an empirically validated methodology. It complements other more qualitative and contextual approaches. This section uses the same methodology to review the sectors already identified by the Algerian government in the new industrial policy. The last section discusses the policy implications of this analysis. A wide variety of methodologies can be used to generate lists of highpotential export sectors; more difficult is determining what to do with such lists. The section offers a few specific policy recommendations and discusses some best practices. But the fact that most required public goods and constraints to investment are sector specific means that …

This paper applies new techniques and metrics to analyze Ecuador's past record of and future opportunities for structural transformation. Ecuador's export dynamics and the emergence of new export activities have been the historical drivers of the country's growth, but recently Ecuador's export basket has undergone little structural transformation. The same broad sectors continue to dominate, and the overall sophistication of the export basket has actually declined in recent years. In order to consider why movement to new, more sophisticated export activities has lagged in Ecuador, we examine export connectedness and find that the country is concentrated in a peripheral part of the product space. We quantitatively scan Ecuador's efficient frontier and identify new, high-potential export activities that are nearby in the product space. This sector evaluation provides valuable information for the government to prioritize dialogue and interventions, but it is not meant to be a conclusive identification of "winners". Rather, we provide policy guidelines to facilitate the emergence of these and other new export activities, dealing with the sector-specificity of much of what the government must provide to the private sector to succeed while at the same time avoiding the well-known perils of traditional industrial policies.

Towards a Sustainable and Efficient State: The Development Agenda of Belize represents a tangible expression of the Inter-American Development Bank's commitment to generating knowledge as part of its assistance to its borrowing member countries and illustrates the Bank's willingness to accompany Belize in its efforts to overcome its development challenges. This intellectual contribution to some of the most important issues regarding Belize's economic and social development is directed primarily at two audiences. First, it is directed at Belizean policymakers, offering a technical and internationally comparative perspective. Second, it is aimed at the wider public who are interested in Belize's economic and social development but who find little material available on the subject.

The purpose of this paper is to analyse the composition of South–South as opposed to South– North trade in recent years, applying emerging methodologies and highly disaggregated trade data to consider whether the South as a market provides developing countries with greater opportunities to transform their productive structures and move to more sophisticated export sectors than the Northern market does. The results show that for a group of developing countries, primarily in Africa, Latin America and Central Asia, exports within the South are more sophisticated and better connected in the product space than exports to the North, whereas the opposite is true for the faster-growing economies of Asia and Eastern Europe (excluding the Commonwealth of Independent States). It is shown that the primary source of cross-country variation in export sophistication and connectedness is between Northbound rather than Southbound export baskets. And yet it is clear that for a large group of developing countries, current export flows to the North are not particularly growth-enhancing, nor do they offer learning opportunities to fuel structural transformation, and for these countries South–South trade flows may indeed be a testing ground for structural transformation. This paper focuses on clearly establishing the facts about export composition by market, and identifying promising avenues for further investigation.

Recent research highlights the relationship between economic development and productive diversification, which may be hindered by market failures. After identifying stages of diversification in disaggregated export data, the authors develop a metric for the flows of exportdiscoveries,or inside-the-frontier innovations in developing countries. They then explore the empirical relationship between economic development and (1) inside-the-frontier-innovation as reflected by the introduction of new export products, (2) export diversification measured by an index of export-revenue concentration, and (3) on-the-frontier innovation as reflected in patents. The data suggest, unsurprisingly, that inside-the-frontier innovation is more common among poor countries than among industrial economies. Overall export diversification increases at low levels of development but declines with development after a high-income point, whereas patenting activity rises exponentially with development. The data also suggest that the relationship between the frequency of export discoveries and economic development is not due to changes in the industrial composition of exports. The authors use a simple model of innovation and imitation to test the hypothesis that the threat of imitation inhibits the discovery of new exports. Econometric evidence suggests that the frequency of export discoveries across countries rises with the returns of export activities (proxied by exogenous export growth during the sample period), but the magnitude of this effect increases with barriers to entry. The count-data estimations deal with unobserved international heterogeneity, and the results are robust to various changes in the specification of the empirical model. This finding supports the hypothesisthat market failures inhibit inside-the-frontier innovation.

Countries seldom grow rich by producing the same things more productively. They usually change what they produce in the process of development. Structural transformation is the process whereby countries move to new economic activities that are more productive and thus are able to pay higher wages. This process is very important for growth: countries that are able to upgrade their exports by developing new economic activities tend to grow faster (Hausmann and Rodrik, 2003; Hausmann, Hwang, and Rodrik, 2006).The purpose of this paper is to apply new methodologies to analyze the history of and future opportunities for structural transformation in the Caribbean. We first look at the composition of exports from the Caribbean, and show that the region is specialized in relatively unsophisticated,―poor-country‖ export products, and this is not simply a consequence of their small size or specialization in tourism and financial services.

The purpose of this paper is to apply new methodologies to analyze the history of and future opportunities for structural transformation in the Caribbean. We first look at the composition of exports from the Caribbean, and show that the region is specialized in relatively unsophisticated, "poor-country" export products, and this is not simply a consequence of their small size or specialization in tourism and financial services.