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1、FRONTIER FIRMS AND JOB CREATIONin BangladeshRami GalalMarc SchiffbauerAlice RossignolGharam DexterPublic Disclosure AuthorizedPublic Disclosure AuthorizedPublic Disclosure AuthorizedPublic Disclosure Authorized 2025 The World Bank1818 H Street NW,Washington DC 20433Telephone:202-473-1000;Internet:ww

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6、s work is subject to copyright.Because The World Bank encourages dissemination of its knowledge,this work may be reproduced,in whole or in part,for noncommercial purposes as long as full attribution to this work is given.AttributionPlease cite the work as follows:“Galal,Rami,Marc Schiffbauer,Alice R

7、ossignol,and Gharam Dexter.2025.Frontier Firms and Job Creation in Bangladesh.World Bank.”Any queries on rights and licenses,including subsidiary rights,should be addressed to World Bank Publications,The World Bank,1818 H Street NW,Washington,DC 20433,USA;fax:202-522-2625;email:pubrightsworldbank.or

8、g.Cover photo:Marina/Adobe Stock#840148925.Further permission required for reuse.Cover design,interior design,and typesetting:Na Kyoung KangCopyediting:Publications ProfessionalsLLC,USA.Frontier Firms and Job Creation in BangladeshCOntents Contents ACKNOWLEDGMENTS 1FIGURES AND TABLES 2ACRONYMS AND A

9、BBREVIATIONS 5 EXECUTIVE SUMMARY 6 1.ECONOMIC GROWTH,PRODUCTIVITY,AND JOB CREATION 12 1.1 Economic growth and job creation 12 1.2 Structural transformation and job creation 16 2.FRONTIER FIRMS 23 2.1 Definition and characteristics of frontier firms 23 2.2 Frontier firms and job creation 28 3.THE BUS

10、INESS ENVIRONMENT 32 3.1 Quality of the business environment 32 3.2 Preferential lane for frontier firms 38 3.3 Administrative weaknesses 40 4.SELECTIVE INTERVENTIONS 44 4.1 Frontier firms and selective interventions 44 4.2 Benefits and costs of selective interventions 49 4.3 Assessment of industria

11、l policy in Bangladesh 53 5.POLICY RECOMMENDATIONS 58 5.1 Business environment 58 5.2 Industrial policy 60 5.3 State capacity 63 REFERENCES 65 APPENDIX:World Bank Enterprise Surveys Data 711Frontier Firms and Job Creation in BangladeshACKNOWLEDGMENTSAcknowledgmentsThis report was prepared by a team

12、led by Rami Galal(Economist,World Bank).The core team members were Marc Schiffbauer(Lead Economist,World Bank),Alice Rossignol(Young Professional,World Bank),and Gharam Dexter(Private Sector Specialist,World Bank).The report benefited from valuable input from Md Abir Hasan(Consultant,World Bank),Mih

13、aly Fazekas(Scientific Director,Government Transparency Institute),Aly Talibab(Researcher,Government Transparency Institute),Eduardo Sandoval(Consultant,World Bank),and the research assistance of Mauricio Latorre(Consultant,World Bank),Bente Jessen-Thiesen(Consultant,World Bank),and Asif Qurishi(Ana

14、lyst,World Bank).It drew on various data sets,primarily the World Bank Enterprise Surveys(2013 and 2022)and the Survey of Manufacturing Industries(2019).Part of the analysis used the World Banks Investment Climate Assessment(ICA)2.0 framework.The report was carried out under the guidance and support

15、 of Gabi Afram(Practice Manager,World Bank)and Mathew Verghis(Regional Director,World Bank).The team is grateful for the insightful and constructive comments of the following peer reviewers:Gaurav Nayyar(Lead Economist,World Bank),Silvia Muzi(Senior Economist,World Bank),Michael Engman(Lead Economis

16、t,World Bank),and Suhail Kassim(Senior Operations Officer,World Bank).We are also thankful for additional comments received from Mohamed Ihsan Ajwad(Senior Economist,World Bank),and Souleymane Coulibaly(Lead Country Economist,World Bank).The team would also like to acknowledge the instructive conver

17、sations with various individuals within and outside the World Bank.Within the World Bank,we benefited from the insights of Hosna Ferdous Sumi(Senior Private Sector Specialist,World Bank),Siddharth Sharma(Lead Economist,World Bank),Bernard Haven(Senior Country Economist,World Bank),Ayago Wambile(Seni

18、or Economist,World Bank),Angela Prigozhina(Senior Economist,World Bank),Tatsiana Kliatskova(Senior Financial Sector Economist,World Bank),Nagaraju Duthaluri(Lead Procurement Specialist,World Bank),and Nishat Noman(Procurement Specialist,World Bank).From outside the World Bank,we benefited from the i

19、nput of Selim Raihan(Professor,University of Dhaka),Ahsan Mansur(Director,Policy Research Institute),Debapriya Bhattacharya(Distinguished Fellow,Center for Policy Dialogue),Masrur Reaz(Chairman,Policy Exchange Bangladesh),Bazlul Haque Khondker(Director,Policy Research Institute),Mohammad Belal Hossa

20、in Chowdhury(Director General,Duty Exemption and Drawback Office,government of Bangladesh),Tanvir Ahmed(NBR,government of Bangladesh),and representatives of the private sector,including Runner Group,Symphony Mobile,and the Federation of Bangladesh Chambers of Commerce&Industries.2Frontier Firms and

21、Job Creation in BangladeshFIGURES and TABLESFigures and tablesFigure 1.1 Bangladeshs growth track record has been impressive from 2000 through 2018 13Figure 1.2 Poverty plummeted between 1995 and 2021 13Figure 1.3 Job creation did not matched economic growth between 2018 and 2024 13Figure 1.4 The em

22、ployment elasticity of growth lagged aspirational peers between 2000 and 2024 13Figure 1.5 The working-age population is growing faster than new employment opportunities,201322 14Figure 1.6 Unemployment is rising,especially for youth ages 15 through 24,201222 14Figure 1.7 Labors contribution to grow

23、th declined between 2000 and 2017 15Figure 1.8 The share of income accruing to the bottom 80 percent of earners is decreasing 15Figure 1.9 Bangladesh has a low job quality measure 15Figure 1.10 Bangladesh had the lowest output per worker among its peers 16Figure 1.11 Growth in value added is moderat

24、e despite its low base 16Figure 1.12 Firms in Bangladesh are the least productive among their peers in the South Asia region 16Figure 1.13 Sectoral employment shares,201019 17Figure 1.14 Labor productivity by sector,201019 17Figure 1.15 Actual and modeled value added per worker 17Figure 1.16 Most pr

25、oductivity growth stems from within-sector improvements rather than cross-sector reallocation of factors of production 18Figure 1.17 More-productive manufacturing firms in Bangladesh do not employ more workers 18Figure 1.18 The top 10 percent most productive firms produce 35 times more sales per wor

26、ker than the bottom 10 percent in services 19Figure 1.19 Few higher-productivity firms coexist with many low-productivity firms,especially in services 19Figure 1.20 Bangladesh has fewer young firms compared with peers 19Figure 1.21 Firms in Bangladesh are older than those in peer countries 19Figure

27、1.22 Bangladesh has the fewestregistered firms relative to market size compared with peer countries,2018 20Figure 1.23 Bangladesh is tied with India for the lowest business density among peers,2018 20Figure 1.24 Firms in Bangladesh lag behind their peers in investing in new,more-productive technolog

28、ies and processes 21Figure 1.25 Firms investments have declined since 2013 21Figure 1.26 FDI is scarce among Bangladeshi firms 21Figure 1.27 The majority of greenfield investments are directed toward the utility sector 21Figure 2.1 A small group of firms in Bangladesh is significantly more productiv

29、e than the rest 24Figure 2.2 Frontier firms are substantially more productive than non-frontier firms 24Figure 2.3 Frontier firms have outperformed their competitors in recent years,201922 25Figure 2.4 Frontier firms innovate more 25Figure 2.5 Total sales:frontier versus non-frontier firms,2013 25Fi

30、gure 2.6 Total sales:frontier versus non-frontier firms,2022 253Frontier Firms and Job Creation in BangladeshFIGURES and TABLESFigure 2.7 The garments sector grew from representing less than one-quarter of frontier firms sales in 2013 26Figure 2.8.to almost two-thirds of fronter firms sales in 2022

31、26Figure 2.9 The garments sector constituted about one-half of non-frontier firms sales in 2013 26Figure 2.10.and continued to make up roughly one-half of non-frontier firms sales in 2022 26Figure 2.11 Frontier firms dominated exports in 2022 27Figure 2.12 The overall number of exporting firms has d

32、eclined since 2013 27Figure 2.13 Share of total employment:frontier firms versus other firms,2013 28Figure 2.14 Share of total employment:frontier firms versus other firms,2022 28Figure 2.15 Frontier firms employment by sector,2013 28Figure 2.16 Frontier firms employment by sector,2022 28Figure 2.17

33、 Non-frontier firms employment by sector,2013 29Figure 2.18 Non-frontier firms employment by sector,2022 29Figure 2.19 Most manufacturing jobs are in younger non-frontier firms 29Figure 2.20 The capital intensity in the garments sector is lower than among the rest of manufacturing 30Figure 2.21 Amon

34、g frontier firms in garments,capital intensity is higher and has grown at a pace similar to the rest of manufacturing 30Figure 2.22 Frontier firms pay higher wages and employ more skilled workers 30Figure 3.1 Bangladeshs score in the Doing Business index is the lowest compared with all peers 33Figur

35、e 3.2 The gap has widened between Bangladeshs Doing Business score and regional and income-group peers scores 33Figure 3.3 Firms time dealing with regulators and waiting for regulatory services exceeds those in peer countries 34Figure 3.4 Bangladeshi firms report high incidence of corrupt practices

36、in regulatory services 34Figure 3.5 The value of gifts expected in Bangladesh for securing government contracts is relatively high 35Figure 3.6 Start-up costs for a business are high,especially for younger firms 35Figure 3.7 Twice as many Bangladeshi firms experience power outages compared with firm

37、s in peer countries 36Figure 3.8 Manufacturers with higher losses from power outages are less productive 36Figure 3.9 Manufacturers with higher losses from power outages are less likely to invest 36Figure 3.10 Frontier firms spend less time dealing with business regulations compared with non-frontie

38、r firms 37Figure 3.11 Regulatory services are faster and more consistently implemented for garments firm s 37Figure 3.12 Frontier firms endure fewer and shorter electricity cuts compared with non-frontier firms 38Figure 3.13 Frontier firms face fewer losses from power outages compared with non-front

39、ier firms 38Figure 3.14 Incidence of noncompetitive procurement for transport,utilities,and construction projects 38Figure 3.15 Three-quarters of frontier firms are LLCs and PLCs 39Figure 3.16 Most non-frontier firms are sole proprietorships or partnerships 39Figure 3.17 A higher share of frontier f

40、irms have either a line of credit or loan from a financial institution 40Figure 3.18 Bangladesh has a low score of regulatory quality 40Figure 3.19 Firms in Bangladesh face longer waiting times and high variation in the implementation of regulatory services 41Figure 3.20 Bangladesh scores particular

41、ly low in government effectiveness compared with peers 41Figure 3.21 Bangladeshs rule of law score is significantly lower than most peers scores 41Figure 4.1 RMG manufacturers and exporters enjoy the lowest corporate tax rates 45Figure 4.2 Exports enjoy the lowest lending caps 464Frontier Firms and

42、Job Creation in BangladeshFIGURES and TABLESFigure 4.3 Frontier RMG firms rely substantially on imports 47Figure 4.4 RMG firms are concentrated in EPZs.48Figure pared with the share of RMG firms outside EPZs 48Figure 4.6 Firms in EPZs generate 10 times more revenue than firms outside such zones 48Fi

43、gure 4.7 The REER was stable until 2011,appreciating thereafter 49 Figure 4.8 Annual export growth declined following appreciation of the REER,but less so for the RMG sector 49 Figure 4.9 The value of RMG exports and Bangladeshs share of the global market have soared since 1993 50 Figure 4.10 The nu

44、mber of RMG factories and workers has multiplied since 1993 50 Figure 4.11 The link between RMG exports and employment growth has deteriorated 51 Figure 4.12 The RMG sectors number of employees relative to exports has declined precipitously 51 Figure 4.13 Bangladesh has the lowest tax to GDP ratio a

45、mong peers 52 Figure 4.14 Corporate tax incentives constituted the bulk of direct tax expenditures in 2021 52 Figure 4.15 Import duties on final goods are much higher than on intermediate inputs 53 Figure 4.16 Bangladeshs exports were concentrated in textiles in 2021 53 Table 4.1 Sectoral affiliatio

46、n of bonded warehouses is dominated by RMG and related industries 47 5Frontier Firms and Job Creation in BangladeshAcronyms and abbreviationsAcronyms and Abbreviations AcronymDefinition BAB Bangladesh Association of Banks BCABanking Company Act of 1991 BKMEABangladesh Knitwear Manufacturers and Expo

47、rters Association BGMEABangladesh Garment Manufacturers and Exporters Association BWbonded warehouses EDF Export Development Fund EPZ export processing zone FBCCI Federation of Bangladesh Chambers of Commerce and Industry FDI foreign direct investment FOB Free on Board(price)GDP gross domestic produ

48、ct ICA 2.0 Investment Climate Assessments 2.0 ILO International Labour Organization LDC least developed country LEED Leadership in Energy and Environmental Design LLC limited liability company LMEs large and medium enterprises MFA Multi-Fiber Agreement MNE multinational enterprise NBR National Board

49、 of Revenue NPL nonperforming loan OECD Organisation for Economic Co-operation and Development PLC public limited company REER real effective exchange rate RJSC Registrar of Joint Stock Companies and Firms RMG ready-made garments SMEs small and medium enterprises SMI Survey of Manufacturing Industri

50、es SRO statutory regulatory order TFP total factor productivity TIN tax identification number TkBangladeshi taka UN Comtrade United Nations Commodity Trade Statistics Database UNCTAD United Nations Trade and Development US$United States dollar VA value added VAT value added tax WBES World Bank Enter

51、prise Survey WDI World Development Indicators WEO World Economic Outlook WGI Worldwide Governance Indicators 6Executive SummaryFrontier Firms and Job Creation in BangladeshExecutive SummaryBangladesh has made notable developmental progress over the past two decades.Economic growth has been among the

52、 top 10 percent globally,and poverty has been reduced by 80 percent over the same period.Exports also saw a dramatic jump from US$6.5 billion in 2000 to US$57.5 billion in 2023.The private sector has played a critical role in this success,spurred by public policy that allowed the ready-made garments

53、(RMG)sector to reach new heights.Bangladeshs impending graduation from the United Nations least developed country(LDC)category in 2026 is a testament to these successes.The question is whether the country is now poised to continue this remarkable performance in the future under the current policy re

54、gime,especially in light of some disagreeable changes in the external environment and the emergence of new challenges at home.This report focuses on one of these challengesnamely,that of creating sufficient productive jobs through the private sector for a rapidly growing labor force.The shortfall in

55、 job creation is well documented.A World Bank jobs diagnostic report(Farole et al.2017)and another more recent report on jobs and resilience(World Bank 2024)pointed out that,although Bangladeshs economic growth over the previous decades was significantly fueled by labor,this trend had markedly decel

56、erated in recent years.From 2013 through 2022,the working-age population grew annually by 1.5 percent,significantly outpacing the 0.2 percent growth in employment.The situation is even more challenging for young people,who face additional hurdles in transitioning from education to employment,often w

57、ith inadequate market-relevant skills.The 2024 Quota Reform Movement,which ignited a series of protests by students that turned deadly and ultimately led to the ouster of the regime,underscores the urgency of addressing the problem of job creation.What makes meeting the job creation challenge more a

58、cute is that the current structure of the economy is not likely to generate the quantity and quality of jobs that Bangladesh needs.Although economic growth over the past two decades has been impressive,the pace of job creation has not matched this achievement.The responsiveness of job growth to gros

59、s domestic product(GDP)growth has lagged peers,and measures of the quality of jobs fell short of what was expected given the level of the countrys GDP.The pattern of structural transformation shows that jobs have not been created in the most productive segments of the economy,with productivity growt

60、h in services remaining stagnant since 2016.Numerically,labor productivity in Bangladesh systematically lagged peers,with firms about 66 percent less productive than their neighbors in South Asia.Within firms,productivity-enhancing investments in capital and new technologies have been scarce.Similar

61、ly,foreign direct investment,a crucial conduit for new and more productive technologies,was meager.7Executive SummaryFrontier Firms and Job Creation in BangladeshAs for the private sector,it can be divided between frontier firms that demand high-skilled workers and non-frontier firms that host most

62、jobs but have limited prospects of output and productivity growth.Frontier firms are defined in this report as the top 10 percent of all firms in terms of their level of productivity.They have been the drivers of Bangladeshs economic performance over the past 10 years,making up three-quarters of all

63、 formal firms revenues in the country.Frontier firms are on average about 11 times as productive as other firms,produce 70 percent of the countrys exports,and are concentrated in the garments sector and tend to operate in export-processing zones.They also exist less extensively in other services and

64、 manufacturing.Consistent with their higher labor productivity,frontier firms pay higher wages,employ more skilled workers,and are more capital intensive than non-frontier firms.The problem is that they employ only 15 percent of all formal workers,whereas non-frontier firms that host the vast majori

65、ty of Bangladeshs labor force operate well below the productivity frontier,rely on more basic production technologies,and offer lower-skill,lower-paying jobs.Much of the conventional wisdom to promote competitiveness and job creation in Bangladesh amid its LDC graduation is arguably not likely to re

66、solve the job creation challenge.It is often recommended that Bangladesh would be well advised to spur exports through diversification and climb up the global value chain ladder through investments in digital and automation technologies while matching those with high-skilled workers(for example,Berg

67、 et al.2021;Gu,Nayyar,and Sharma 2021).These suggestions are desirable in their own right and can indeed be justified on the grounds of maximizing the benefits to Bangladesh from globalization,but they are likely to be more beneficial to frontier firms and high-skill workers because they rely on cap

68、ital-intensive technologies,which are in short supply for most firms.Added to this,skill-biased technological change and globalization tend more broadly to favor frontier firms over non-frontier ones(Acemoglu and Restrepo 2019;Diao et al.2021).Accordingly,the next wave of transformation to attain in

69、clusive growth in Bangladesh is not likely to come merely from advancing the interests of the leading firms but also from empowering all firms.This is the main argument of this report.What Bangladesh needs to do to address the job creation challenge is to ensure that all firmsfrontier and non-fronti

70、erhave the opportunity to grow and to be more productive.How to do so is arguably the most important developmental question facing Bangladesh today.To provide some insights into the answer,this report assesses the performance of frontier and non-frontier firms and identifies their characteristics,ex

71、plores the features of the business environment that merit reforms,identifies the shortcomings of the prevailing pattern of selective government interventions,and offers a set of policy recommendations for the next wave of transformation.The report distinguishes itself from previous studies in sever

72、al ways.First,it puts forward a new perspective on how to create productive jobs in Bangladesh,not only by relying on frontier firms but also by empowering non-frontier ones.Second,besides updating the features of the business environment in Bangladesh and documenting the divergent experiences of fr

73、ontier and non-frontier firms,it offers a fresh analysis of the pattern of selective government interventions and its underlying causes.Third,the report goes beyond assessing various policy instruments and delves into issues related to the capacity of the state in 8Executive SummaryFrontier Firms an

74、d Job Creation in Bangladeshdesigning and implementing them,along with some discussion of the political dynamics of the relationship between the state and frontier firms.Finally,the report puts together a policy reform agenda that has the potential of supporting the government of Bangladesh in its e

75、ffort to meet the challenge of creating decent and productive jobs through the private sector.One of the reports most important messages is that the past strategy of combining export promotion for frontier firms and import substitution for the rest of the firms has run its course.On the plus side,th

76、ere is little doubt that export promotion policies have resulted in a resounding success of the RMG sector and that this has contributed to Bangladeshs impressive developmental track record.However,there are growing concerns that overreliance on RMGs is not in the best interests of Bangladesh going

77、forward.The positive impact of the sector on creating jobs is diminishing:the sectors number of employees relative to the value of its exports is just half what it was 10 years ago.Its share of female employment has also dropped from 90 percent in the 1980s to 50 percent today,and womens retirement

78、age in the sector currently stands at just 35 years.The fiscal cost of supporting RMG exporters is also sizable.Corporate tax exemptions,which include favorable rates to RMGs,amounted to 2.4 percent of GDP in 2021.Combined with a host of other tax exemptions and limited coverage of taxpayers,Banglad

79、eshs ratio of tax revenues to GDP is one of the lowest in its region.Furthermore,with over 80 percent of Bangladeshs exports entering preferential markets,the impending LDC graduation is forecast to result in a 7 percent to 14 percent reduction in exports.Meanwhile,the nonexporting sectors continue

80、to operate within an import substitution strategy,which accords them heavy protection and restrained competiton.As a result,these firms tend to be less productive,and therefore are able to offer only lower-paying jobs.Going forward,a new strategy and a new set of policies are much needed.Starting wi

81、th the business environment,the reform agenda should aim at making it more friendly to both non-frontier and frontier firms.Currently,there are several shortcomings that frontier and non-frontier firms must endure.However,by virtue of their capabilities and resources,and the room for discretion in t

82、he implementation of regulations,frontier firms seem to be able to navigate better through the complex regulatory environment.Based on the evidence provided in this report,it takes non-frontier firms a longer time to secure regulatory services compared with their frontier counterparts.Frontier firms

83、 also enjoy better public services,such as fewer and shorter power outages,leading to lower revenue losses than non-frontier firms.These disparities can be reduced by simplifying the regulations themselves,reducing the room for discretion in their implementation,and strengthening the governments cap

84、acity to enforce the rules.Similarly,it is time for the government to evaluate and rationalize its pattern of selective interventions.Currently,frontier firms benefit from lower corporate tax rates,an array of ad hoc discretionary tax exemptions,along with access to preferential credit,lending caps,

85、and numerous interest rate subsidy programs primarily targeting RMG exporters.At the same time,the trade regime heavily favors RMG exporters by enabling them to enjoy duty-free imports while according other sectors protection from competition from imports by maintaining high tariffs.The combined eff

86、ects of both features are to encourage a few exporting firms in the frontier segment of the economy and to make sales in the domestic market more profitable for the others.9Executive SummaryFrontier Firms and Job Creation in BangladeshThis pattern of selective intervention,born from clientilistic st

87、atebusiness relations,is not consistent with sustainable and inclusive development,nor does it enhance the capacity of the economy to create decent and productive jobs.To convert the proposed strategy into action,the report advocates a set of concrete policy and institutional reforms under the headi

88、ngs of the business environment,industrial policy,and state capacity.The key recommendations are summarized below.Reforming the business environment entails the following measures:1.Reducing transaction costs for firm entry,operation,and exit is essential for improving the business environment.In Ba

89、ngladesh,facilitating the entry of new firms requires simplifying the registration procedures(for example,to establish a limited liability company)and consolidating licensing processes,introducing a provisional licensing system and developing sector-specific guidelines for permits,and exempting newl

90、y established firms from mandatory annual audit fees in their first years of operation unless they surpass a certain revenue threshold.Based on consultations with stakeholders,the cost of starting a business in Bangladesh amounts to approximately US$10,000.This significant expense poses a challenge,

91、particularly for new companies.The total includes RJSC registration,obtaining a trade license,and annual audit fees,regardless of the size of firm revenues.Reducing operational costs requires streamlining regulatory procedures and developing a centralized online platform for all applications,combine

92、d with strict processing timelines,robust anti-corruption measures,and providing regular training on ethical standards for officials.Finally,reducing transaction costs for the exit of firms requires clear bankruptcy regulations,simplified legal procedures to ensure smooth business discontinuation or

93、 transformation,more efficient allocation of resources,and protection of the interests of all relevant stakeholders.2.Addressing glaring bottlenecks in public services,particularly in the area of energy provision,can be done by investing in binding bottlenecks in energy infrastructure,upgrading the

94、national grid,and expanding access to alternative energy sources to ensure a stable power supply and reduce reliance on costly generators.It would also be desirable to enforce competitive procurement practices in awarding public contracts in transport,utilities,and construction,which would improve t

95、he efficient provision and quality of these utilities.3.Promoting consistency in the implementation of regulations across all firms,frontier and non-frontier,which involves streamlining the rules themselves and empowering regulatory officials through capacity-building programs.Increasing transparenc

96、y through digitizing administrative processes and conducting regular performance audits can also reduce opportunities for corruption and ensure equal treatment across firms,sectors,and regions.10Executive SummaryFrontier Firms and Job Creation in BangladeshReorienting industrial policy involves the

97、following measures:4.Adopting a more effective industrial policy by embracing a strategic,data-driven approach to diversification in support of economic growth and job creation at the levels of sectors and main products.This process should begin with evaluating existing selective interventions(such

98、as the Export Development Fund and the duty drawback systems),followed by designing new policies that support activities with high growth and job creation potential.The evaluation can be guided by whether existing policies have clear performance metrics(such as those used in the RMG sector),include

99、specific sunset clauses,and target activities(such as experimental ventures and innovation)rather than sectors.5.Aligning broad policies with export promotion and competitiveness,which would critically require maintaining a competitive exchange rate regime to make exports more attractive than sellin

100、g in the domestic markets.Similarly,reducing the import-substitution bias by making tariffs more neutral would work in the same direction(through implementation of the National Tariff Policy of 2023).Finally,diversification of exports can be enhanced further by improving market access(for example,by

101、 signing new FTAs),providing assistance for compliance with newly introduced international standards,and working toward building better trade logistics.6.Encouraging innovation over lobbying,which could be done by providing support to horizontal industrial policies such as education,training,and res

102、earch and development activities.It could also be pursued by supporting the adoption of new technologies and establishing business incubators and innovation hubs.In all cases,it is important to limit lobbying influence and rent-seeking behavior,especially in relation to frontier firms.7.Dedicating s

103、pecial attention to designing an appropriate industrial policy for services,given its increasing role in job creation and economic growth.This would entail a new strategy targeting the removal of the constraints faced by firms across information technology,financial services,tourism,health care,and

104、small and medium enterprises more broadly.It could further involve some measures of support,provided that they are well designed.8.Shifting away from a top-down approach to a collaborative and adaptive strategy in the design of industrial policy to ensure the responsiveness and effectiveness of the

105、new policies.It is important,though,that the outcome of such a dialogue serves the public interestand not that of the few.Strengthening institutional capacity through the following measures:9.Strengthening the capacity of key state institutions and establishing a clear definition of their roles to i

106、mprove Bangladeshs business environment and its industrial policy regime.For example,it would be desirable to reform the National Board of Revenue by separating tax policy development from tax 11Executive SummaryFrontier Firms and Job Creation in Bangladeshcollection so as to enhance its efficiency

107、and reduce internal conflicts of interest.As another example,enhancing the independence of Bangladesh Bank by minimizing political interference would enable it to practice more effective oversight of the banking sector,creating a stable financial environment that supports sustainable economic growth

108、.Finally,the modernization of land administration by updating land records and reducing discretionary decisions by officials is essential to improving transparency and efficiency.10.Adapting to new circumstances and capitalizing on opportunities.Given that reform is an ongoing and dynamic process,it

109、 is important that government institutions continuously monitor any new developments and make the necessary adjustments to respond to these changes and take advantage of any emerging opportunities.This requires strengthening monitoring and evaluation(M&E)systems.The remainder of the report is struct

110、ured as follows:Chapter 1 assesses the capacity of the economy of and the private sector to generate adequate jobs for a rapidly growing labor force in Bangladesh.Chapter 2 explores these same questions,with a focus on frontier firms.Chapter 3 explores the extent to which the business environment,bo

111、th de jure and de facto,is friendly across firms and sectors.Chapter 4 evaluates the merits of government interventions,through such instruments as subsidies,taxes,and preferential regulatory rules,with a view to identifying where reforms may be needed.Chapter 5 provides a set of mutually enforcing

112、policy recommendations.121.Economic growth,productivity,and job creationFrontier Firms and Job Creation in Bangladesh1.Economic growth,productivity,and job creationWith a particular focus on economic growth and structural transformation,this chapter assesses the ability of the economy of Bangladesh

113、to generate good and productive jobs relative to the needs of the country.It first looks at the trend and pattern of economic growth in recent years in relation to the rate of job creation.It then delves into issues of productivity and structural transformation,given their critical role in contribut

114、ing to the creation of decent and productive jobs.1.1 Economic growth and job creationBangladesh has made notable developmental progress.Numerically,economic growth has consistently surpassed the global average and remained largely above the threshold of the 90th percentile for most of the past coup

115、le of decades(figure 1.1).Alongside this growth,and since the mid-1990s,poverty was reduced from over 30 percent of the population living under the US$2.15 per day poverty line to just 5 percent in 2022(figure 1.2).The private sector has increasingly played a critical role in this success,particular

116、ly firms engaged in ready-made garments(RMG)exports.Bangladeshs impending graduation from the United Nations least developed country category in 2026 is a testament to these successes.131.Economic growth,productivity,and job creationFrontier Firms and Job Creation in BangladeshFigure 1.1 Bangladeshs

117、 growth track record has been impressive from 2000 through 2018 Figure 1.2 Poverty plummeted between 19952022 Source:World Economic Outlook Database.Source:World Bank calculations based on World Development Indicators Database.Note:PPP=purchasing power parity.0 1 2 3 4 5 6 7 820002001200220032004200

118、520062007200820092010201120122013201420152016201720182019GDP Growth(%)BangladeshGlobal averageGlobal 90th percentile19951996199719981999200020012002200320042005200620072008200920102011201220132014201520162017201820192020202120220 10 20 30 40 50 60 70 80Poverty headcount ratio(%of population)$3.65 a

119、day(2017 PPP)$2.15 a day(2017 PPP)However,this impressive track record has not been matched by equal success in job creation.In recent years,real gross domestic product(GDP)growth averaged 6.4 percent between 2018 and 2024,but,as shown in figure 1.3,job growth fell below what was expected given the

120、countrys level of economic growth.Additionally,while Bangladeshs employment elasticity of growth,which measures the responsiveness of job creation to economic growth,was higher than that of some neighboring countries,it was much lower than regional peers such as Indonesia,the Philippines,and Viet Na

121、m(figure 1.4).Although these measures are not without limitations,they suggest that economic growth has not translated effectively into job creation.Figure 1.3 Job creation has not matched economic growth between 2018 and 2024Bangladesh10123454-202468Job growth,average 2018-24(%)GDP growth,average 2

122、018-24(%)Source:ILO 2012 and World Economic Outlook.Note:GDP=gross domestic product.Black line is a linear prediction of job growth on GDP growth.Figure 1.4 The employment elasticity of growth lagged aspirational peers between 2000 and 2024Elasticity00.10.20.30.40.50.6Sri LankaNepalIndiaBangladeshTr

123、kiyeIndonesiaPhilippinesViet Nam0.140.190.240.280.320.460.480.49Source:World Bank calculations based on World Economic Outlook and ILOSTAT.141.Economic growth,productivity,and job creationFrontier Firms and Job Creation in BangladeshThe working-age population in Bangladesh has grown faster than empl

124、oyment growth,particularly among young people,exacerbating the unemployment rates.From 2013 through 2022,the working-age population grew annually by 1.5 percent,significantly outpacing the 0.2 percent growth in employment(figure 1.5).This disparity led to a 2 percent yearly rise in unemployment,reac

125、hing 5.5 percent in 2022.The situation is even more challenging for young people.Although the population of ages 15 through 24 remained relatively stable between 2013 and 2022,its share in employment shrank by an average of 3.4 percent per year,increasing their unemployment rate from 10 percent to 1

126、6 percent(figure 1.6).The reduction in the contribution of labor to GDP growth signals that lower-skilled workers might not have been benefiting from growth.Between 200005 and 201217,capitals contribution to GDP relative to labor increased,indicating a shift toward a more capital-intensive economy.F

127、or workers,capital deepening can be advantageous if it leads to wage and employment growth.However,it might also mean that workers are not benefiting enough from the gains in productivityfor example,if routine tasks are substituted by information technologynegatively impacting lower-skilled labor th

128、e most(Autor and Dorn 2013;Goos,Manning,and Salomons 2014).In Bangladesh,the reduction in labors share for the lowest 80 percent of the income distribution(figures 1.7 and 1.8)is consistent with this prediction.This trend can have broader adverse economic effects as well because declining labor shar

129、es can negatively influence key macroeconomic variables such as household consumption,private investment,net exports,and government consumption(ILO 2012).Figure 1.5 The working-age population is growing faster than new employment opportunities,201322 Figure 1.6 Unemployment is rising,especially for

130、youth ages 15 through 24,201322Source:ILOSTAT.Source:ILOSTAT.5.63.40.02.00.21.54.0 3.0 2.01.001.02.03.04.05.06.0UnemploymentEmploymentPopulationUnemploymentEmploymentPopulationYouth,ages 1524Working-age population,ages 1564Average annual growth rate 2013-22(%)0 4 2 6 8 10 12 14 16 18Rate of unemploy

131、ment(%)Unemployment,1564Unemployment,15242013201420152016201720182019202020212022151.Economic growth,productivity,and job creationFrontier Firms and Job Creation in BangladeshFigure 1.7 Labors contribution to growth declined between 2000 and 2017Figure 1.9 Bangladesh has a low job quality measureFig

132、ure 1.8 The share of income accruing to the bottom 80 percent of earners is decreasing Source:World Bank calculations based on World Development Indicators Database.Source:Hovhannisyan et al.2022.Note:JQM=job quality measure.Source:ILOSTAT.Note:RHS=Right-hand side.545249301817163033Share of real GDP

133、 growth(%)Capital stockLaborTotal factor productivity0102030405060708090100200020052006201120122017Sri Lanka05101520253011.522.533.54GDP per capita(US$,thousands)JQM for wage employeesBangladesh0Share of total income(%)Income share grwoth(%)Growth(RHS)ShareBottom 40%Middle 40%Top 20%5101520253035404

134、5504321012345Available measures of job quality also suggest that Bangladesh is underperforming relative to its GDP.Generally,a good-quality job is one that provides sufficient earnings to raise living standards,offers adequate benefits,ensures job security and safety,and fosters job satisfaction.Tak

135、ing this multitude of factors into consideration,one study covering 40 countries(Hovhannisyan et al.2022)found that job quality in Bangladesh was lower than expected,given its GDP per capita,and that its rank was below peers such as Sri Lanka(figure 1.9).161.Economic growth,productivity,and job crea

136、tionFrontier Firms and Job Creation in Bangladesh1.2 Structural transformation and job creation Two factors have contributed to labors declining share in GDP growth in Bangladesh,namely,low labor productivity and limited structural transformation.For the former,available evidence indicates that labo

137、r productivity in Bangladesh was the lowest among its peers during the period 2010 through 2019(figures 1.10 and 1.11).The average output per worker in Bangladesh in 2019 was just 72 percent of that of workers in India,one-half those in Indonesia,one-third of those in Sri Lanka,and only one-fifth of

138、 those in China.Despite some improvement over time,labor productivity remained relatively low compared with those peers.Its important to note that labor productivity is only a partial measure because it excludes the contributions of capital and efficiency improvements.Nonetheless,it is still suggest

139、ive of the variations in performance.Figure 1.10 Bangladesh had the lowest output per worker among its peersFigure 1.11 Growth in value added is moderate despite its low base Source:World Bank calculations based on World Development Indicators Database.Note:Value added per worker is defined as the r

140、atio between the total value added generated by an economy and the total number of workers employed in the economy.Source:World Bank calculations based on World Development Indicators Database.Note:Value added per worker is defined as the ratio between the total value added generated by an economy a

141、nd the total number of workers employed in the economy.Value added per worker(2015 US$)010,0005,00015,00020,00025,00030,00035,00020102019BangladeshChinaIndiaIndonesiaNigeriaPakistanPhilippinesSri LankaTrkiyeViet NamGrowth in value added per worker,2019,three-year averageBangladeshChinaIndiaIndonesia

142、NigeriaPakistanPhilippinesSri LankaTrkiyeViet NamOverall value added per worker,201932101234567805101520253035The shortfall in productivity is equally present in manufacturing and services.Firms in manufacturing and services in Bangladesh were on average about 66 percent less productive than their p

143、eers in other South Asian countries(figure 1.12).This is a worrisome indicator from the perspectives of growth and the creation of decent and productive jobs.Figure 1.12 Firms in Bangladesh are the least productive among their peers in the South Asia regionSource:World Bank Enterprise Survey 2022,ht

144、tps:/www.enterprisesurveys.org.Note:For this figure,the peers of the South Asia region are firms in Afghanistan,Bhutan,India,Nepal,and Pakistan.Regression of log sales per worker on dummy for manufacturing and services firms in Bangladesh after controlling for sector,location,firm size,and firm age.

145、0ManufacturingServicesLog of sales per worker-.65-.66171.Economic growth,productivity,and job creationFrontier Firms and Job Creation in BangladeshWith respect to structural transformation,the evidence shows that job creation has not occurred in the most productive segments of the economy.Services h

146、ave become the largest employer in Bangladesh,with the share of the working-age population employed in the sector increasing from 35 percent to 41 percent between 2010 and 2019(figure 1.13).This trend was balanced by a decline in the share of workers in agriculture,where employment declined from 47

147、percent to 38 percent over the same period.Although services are significantly more productive than agriculture,the drawback of this trend is that labor productivity growth in services has been stagnant since 2016(figure 1.14).In the meantime,while industry has experienced a steady rise in productiv

148、ity,making it 14 percent more productive than services,employment in the sector has remained low and relatively stable between 2010 and 2019.These trends inhibit overall productivity growth in the economy.In fact,had productivity growth in services matched that of manufacturing,aggregate labor produ

149、ctivity in the economy would have been 20 percent higher in 2020(figure 1.15).Figure 1.13 Sectoral employment shares,201019Figure 1.14 Labor productivity by sector,201019Source:World Development Indicators Database.Note:Labor productivity is defined as the ratio between the total value added generat

150、ed by a sector and the total number of workers employed in the sector.Source:World Development Indicators Database.Note:Labor productivity is defined as the ratio between the total value added generated by a sector and the total number of workers employed in the sector.Sectoral employments shares(pe

151、rcent)051015202530354045502010201120122013201420152016201720182019AgricultureIndustryServicesLabor productivity01234562010201120122013201420152016201720182019AgricultureIndustryServicesOverallFigure 1.15 Actual and modeled value added per worker Source:World Bank calculations based on World Developm

152、ent Indicators Database.Note:Value added per worker generated by a sector and the total number of workers employed in the sector.In the figure,the hypothetical level of value added per worker is reported if the labor shares of manufacturing and services sectors would have remained at the same level

153、as in 2010.Value added per worker2.53.03.54.04.55.02010201120122013201420152016201720182019ActualSector shares fixedThe sluggish pattern of structural transformation is consistent with the finding that most productivity growth has been driven by within-sector and within-firm gains,rather than cross-

154、sectoral reallocation.Figure 1.16 presents the results of an aggregate productivity decomposition of the economy,which indicates that most productivity growth has been driven by within-sector productivity gains.Static reallocationthe shifting of resources across activities of similar productivity le

155、velsaccounts for about half as much.Demographic change and dynamic reallocation(that is,resources shifting from lower-to higher-productivity activities,have played a lesser 181.Economic growth,productivity,and job creationFrontier Firms and Job Creation in Bangladeshrole.Figure 1.17 presents a more

156、in-depth look into the drivers of aggregate labor productivity growth in manufacturing.Overall manufacturing productivity is driven almost entirely by improvements within firmsnot from labor reallocating from less-to more-productive ones.In other words,more-productive manufacturing firms are not emp

157、loying more workers in Bangladesh,possibly reflecting restrictions and inefficiencies that are distorting the domestic markets.Figure 1.16 Most productivity growth stems from within-sector improvements rather than cross-sector reallocation of factors of productionFigure 1.17 More-productive manufact

158、uring firms in Bangladesh do not employ more workers Source:World Bank calculations based on World Development Indicators Database.Data covers 200017.Note:Using the Shapley method,per capita output growth is decomposed into four components:productivity growth,employment growth,labor force growth,and

159、 change in working-age population.Source:Bangladesh Bureau of Statistics,“Survey of Manufacturing Industries(SMI)-2019,”July 2020,based on 9,000 firms.Note:Labor productivity is decomposed following Olley and Pakes(1995).Allocative efficiency measures to what extent more-productive firms employ more

160、 workers.Wtihin-sector productivityStatic reallocationDynamic reallocationEmployment rateParticipation rateDemographic change-0.50.00.51.01.52.02.53.0Sources of productivity growthAllocative efficiencyWithin-firm productivity024681012Sector and firm productivity differentials have been widening over

161、 time.The 10 percent most productive firms in manufacturing are 14 times as productive as the bottom 10 percent(figure 1.18).Although this productivity differential is sizable,it is substantially larger among firms in services,where the top 10 percent most productive firms produce 35 times more sale

162、s per worker than the bottom 10 percent.In both sectors,there is a small group of highly productive firms,while most firms are substantially less productive,as illustrated by the skewed productivity distributions(figure 1.19).In services,an even larger number of firms has lower productivity levels.O

163、ne of the implications of the falling gap between agriculture and low-productivity service activities is a weakening of incentives for less-skilled workers to move away from agriculture.191.Economic growth,productivity,and job creationFrontier Firms and Job Creation in BangladeshFigure 1.18 The top

164、10 percent most productive firms produce 35 times more sales per worker than the bottom 10 percent in servicesFigure 1.19 Few higher-productivity firms coexist with many low-productivity firms,especially in servicesSource:World Bank Enterprise Survey 2022,https:/www.enterprisesurveys.org.Note:Distri

165、bution of log sales per worker among manufacturing and services firms.Source:World Bank Enterprise Survey 2022,https:/www.enterprisesurveys.org.Note:Distribution of log sales per worker among manufacturing and services firms.Productivity 9010 percentileProductivity 8020 percentile953514ServicesManuf

166、acturing0510152025303540ManufacturingServices00.20.40.6Density68101214Distribution of sales per worker(US$2009,logged)The limited presence of new and young firms signals a lack of dynamism in the private sector,along with limited opportunities for job creation.New and young firms are often important

167、 sources of job creation and are more likely to adopt innovative technologies and business practices,which can directly enhance the productivity of their workers.Bangladesh has few such firms to drive productive job creation.Just 21 percent of all formal firms in Bangladesh have started operations s

168、ince 2012(figure 1.20).This share of young firms is only half of that among Viet Nams private sector,where 40 percent of firms started operating after 2012.Firms in Bangladesh tend to be much older than those in peer countries(figure 1.21)and exhibit signs of stagnation.Figure 1.20 Bangladesh has fe

169、wer young firms compared with peers Figure 1.21 Firms in Bangladesh are older than those in peer countriesSource:World Bank Enterprise Survey 2022,https:/www.enterprisesurveys.org.Note:South Asia is the average for this region in the past 10 years.Young firms are those that started operating in the

170、past 10 years.Source:World Bank Enterprise Survey 2022,https:/www.enterprisesurveys.org.Share of young firms(10years or less)051015202530354045Bangladesh 2022India 2022South AsiaViet Nam 202321293640BangladeshCambodiaIndiaPhilippinesViet NamChinaIndonesiaThailandTrkiyeFirm age(years)0510152025201.Ec

171、onomic growth,productivity,and job creationFrontier Firms and Job Creation in BangladeshBangladeshs low rate of new firm entrants in the formal private sector indicates the presence of barriers to entry,which inhibit efficient resource allocation and productive job creation.Although Bangladesh regis

172、tered about 4,500 new limited liability companies(LLCs)in 2018,that was the lowest rate of newly registered LLCs per 1,000 working-age people(ages 15 through 64)among peer countries(figure 1.22).1 The low investments in new firms have resulted in a low business density:only 1.5 LLCs exist for 1,000

173、working-age people,which is one of the lowest rates among peer countries(figure 1.23).In the Philippines and Thailand,for example,10.7 and 5.5 LLCs exist per 1,000 working-age people,respectively.The low share of young firms and low number of formal firms limit the opportunities for well-paid jobs i

174、n Bangladesh and point to significant barriers to entry.1 2018 is the latest year with available data for Bangladesh;the rate was comparably low in earlier years.2 World Bank(forthcoming)provides a sector-focused analysis of impediments to greater private investment.Figure 1.22 Bangladesh has the fe

175、west registered firms relative to market size compared with peer countries,2018 Figure 1.23 Bangladesh is tied with India for the lowest business density among peers,2018 Source:World Bank Entrepreneurship Database 2018,https:/www.worldbank.org/en/programs/entrepreneurship.Note:The total(new)busines

176、s density is defined as the total(new)number of private limited liability registered firms per 1,000 working-age people(those ages 1564).*The Philippines is reported in the Eurostat list of offshore financial centers.*For China,only the data for Beijing and Shanghai were included.Source:World Bank E

177、ntrepreneurship Database 2018,https:/www.worldbank.org/en/programs/entrepreneurship.Note:The total(new)business density is defined as the total(new)number of private limited liability registered firms per 1,000 working-age people(those ages 1564).*The Philippines is reported in the Eurostat list of

178、offshore financial centers.*For China,only the data for Beijing and Shanghai were included.BangladeshCambodiaIndiaPhilippines*Viet NamChina*IndonesiaThailandTrkiyeNew companies per 1,000 adults0321456789108.71.61.51.40.70.30.30.10.04BangladeshCambodiaIndiaPhilippines*China*ThailandTrkiyeCompanies pe

179、r 1,000 adults03020104050607062.316.810.75.55.41.51.3Productivity growth and job creation within firms could have been stronger if firms invested and innovated more than they did.At the firm level,the creation of productive jobs hinges on investments in capital and new technologies,which are limited

180、 among Bangladeshi firms because of restricted access to finance,the existence of complex regulatory requirements,and a lack of awareness about the benefits of technological upgrades(Gu,Nayyar,and Sharma 2021).2 Compared with their peers,only 3 percent of firms in Bangladesh license a technology fro

181、m a foreign company,whereas the share is about 10 percent of firms in Indonesia,the Philippines,and Viet Nam(figure 1.24).This implies a forgone opportunity for domestic firms to upgrade the quality of their investment through technology transfer from foreign-owned companies.Moreover,firms investmen

182、ts have declined over time,as shown in figure 1.25,which plots the distribution of Bangladeshi firms investments in physical capital in 2013 and 2022.Notably,the decline in investment was more pronounced among the bottom half of firms that have invested in physical capital.211.Economic growth,produc

183、tivity,and job creationFrontier Firms and Job Creation in BangladeshFigure 1.24 Firms in Bangladesh lag behind their peers in South Asia in investing in new,more-productive technologies and processesSource:World Bank Enterprise Survey 2022 or latest available year for peer countries.Note:R&D=researc

184、h and development.Share of firms using technologylicensed from foreign companies*Share of firms having their own websiteShare of firms that introduceda process innovationShare of firms that spend on R&D010203040506070PercentBangladeshCambodiaIndiaPhilippinesViet NamChinaIndonesiaThailandTrkiyeFigure

185、 1.25 Firms investments have declined since 2013Source:World Bank Enterprise Survey 2022,https:/www.enterprisesurveys.org.Note:The figure shows the density of firms investments in 2013 and 2022.00.050.10.150.2Density,weighted051015Volume of investments(US$2009,logged)20132022Figure 1.26 FDI is scarc

186、e among Bangladeshi firmsFigure 1.27 The majority of greenfield investments are directed toward the utility sectorSource:World Bank,based on the UNCTAD FDI markets database,https:/unctadstat.unctad.org/datacentre/dataviewer/US.FdiFlowsStock.Note:FDI=foreign direct investment;LMIC=lower-middle-income

187、 countries.Source:World Bank,based on the UNCTAD FDI markets database,https:/unctadstat.unctad.org/datacentre/dataviewer/US.FdiFlowsStock.Note:FDI=foreign direct investment.Share of FDI in GDP(%)00.51.01.52.02.53.03.54.04.55.02010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022Bangladesh

188、LMICSouth Asia201014201519202023AgricultureConstructionManufacturingMarket servicesMining and quarryingNonmarket servicesUtilitiesGreenfield FDI(US$,millions)0 21 0 2,584 1,093 2,237 3,933 18,554 1,106 Foreign direct investment(FDI),a crucial conduit for introducing new and more productive technolog

189、ies,is also scant in Bangladesh.FDI in Bangladesh has hovered around 1 percent of GDP,which is substantially lower than the average share of FDI to GDP among lower-middle-income countries and peers in the South Asia region(figure 1.26).Over the past decade,the utility sector has attracted the majori

190、ty of greenfield FDI in Bangladesh.In contrast,very little FDI went to market services,such as finance or business services,both of which have a higher potential for raising productivity among domestic firms(figure 1.27).221.Economic growth,productivity,and job creationFrontier Firms and Job Creatio

191、n in BangladeshThe low level of FDI in Bangladesh limits also the scope for links and productivity or job spillovers to domestic firms and suppliers.FDI has been found to spur significant productivity spillovers to domestic firms,especially among domestic(non-frontier)manufacturing or services firms

192、 supplying products or services to multinational enterprises(MNEs)operating in the country,which have been found to be significantly more productive than local firms.The scant FDI stock in Bangladesh,however,limits the scope for such productivity spillovers to domestic suppliers.Moreover,most FDI in

193、 Bangladesh is in the utilities sector(figure 1.27),where firms have fewer links with domestic suppliers,further limiting the scope for spillovers to domestic firms.In contrast,manufacturing or services sectors where large spillovers have been found in other countries have seen modest FDI.Such produ

194、ctivity spillovers or trickling down may also arise from frontier firms sourcing inputs from domestic suppliers(not operating at the domestic productivity frontier).There is,however,little evidence in existing research for such spillovers apart from those by MNEs,making this a crucial area for futur

195、e research.However,the sizable productivity gaps between domestic frontier and non-frontier firms indicate that these links remain limited and that productivity growth has not,by and large,trickled down to many non-frontier firms.Taken together,the findings so far suggest that Bangladeshs economy is

196、 not poised to generate the quantity and quality of jobs required to meet its needs.The rate of job growth in response to GDP growth lags that of peer countries,and job quality measures do not align with the nations GDP level.Structural transformation patterns indicate that job creation has not occu

197、rred in the most productive sectors and that productivity growth has been driven more by improvements within firms rather than from reallocation of resources across firms and sectors.But even then,compared with peer countries,within-firm productivity growth in Bangladesh is low because the average i

198、nvestments by firms into productivity-enhancing capital and new technologies are relatively meagre.These features suggest that the economy at large is not likely to generate sufficient jobs in the future.The question discussed next is whether this assertion applies to frontier firms as well.232.Fron

199、tier firms Frontier Firms and Job Creation in Bangladesh2.Frontier firms Despite the low productivity of Bangladeshi firms on average,some of those firms enjoy world-class status.This group of firms,which are defined here as frontier firms based on their superior productivity performance,tend to pos

200、sess the organizational and operational capabilities to be at the forefront.This chapter delves into their definition and characteristics and assesses whether they hold the potential for creating the productive jobs that Bangladesh needs.2.1 Definition and characteristics of frontier firms Which fir

201、ms are considered frontier firms?Frontier firms are defined in this report as the most productive 10 percent of all formal firms.This demarcation follows the approach taken in similar studies(Andrews et al.2015).The main data source underpinning the analysis is the World Banks Enterprise Surveys(WBE

202、S)conducted in 2013 and 2022,complemented by the Survey of Manufacturing Industries(SMI)conducted in 2019.The primary measure of productivity used in this report is total factor productivity(TFP),complemented by labor productivity where data were not available.Specifically,although the WBES provide

203、information on the revenues and labor inputs of all firms,they lack full information for about one-half of the firms in the sample with respect to physical capital stock.To cover this limitation,frontier firms are defined here as the 10 percent most productive firms in terms of TFP,augmented by the

204、subset of firms for which no TFP measures were possible but which are among the top 10 percent in terms of labor productivity.Following this definition,frontier firms accounted for 13 percent of all firms in the sample in 2022.3 Notably,frontier firms are defined at the economywide level,and not wit

205、hin individual sectors,which mitigate concerns about potential small sample issues within sectors when identifying frontier firms.The presence of only one or two frontier firms in certain sectors,such as automobiles or smartphone manufacturing,aligns with findings from consultations.A description of

206、 WBES data uses for analysis in this and other chapters is provided in the appendix.3 As a robustness check,we tested alternative definitions of frontier firmsusing the top 5 percent and 15 percent of firms as well as labor productivity and TFP aloneand found that the differences between frontier an

207、d non-frontier groups remained significant across all definitions.242.Frontier firms Frontier Firms and Job Creation in Bangladesh00.10.20.30.4Density101214161820Value added per worker(US$2009)2.41.70.0910.051Size(ln.Employment)N=967Age(ln.)N=959Labor productivity(ln.)N=967TFPR(ln.)N=4800Coefficient

208、s on:Frontier firm=1Frontier firms are about substantially more productive than the average non-frontier firm.Their TFP is 11 times higher than non-frontier firms.As for labor productivity,each worker in a frontier firm generates on average 5.5 times more output than a worker in a non-frontier firm(

209、figure 2.2).These are significant disparities,reflecting a variety of differences in their characteristics.Frontier firms innovate more and have outperformed their competitors in recent years,expanding the productivity gap.Frontier firms grew faster than non-frontier firms between 2019 and 2022.Thei

210、r sales growth was 13 percent higher over those three years than that of non-frontier firms of comparable size and age and operating within the same state and sector(figure 2.3).Consistently,they also had 11 percent higher labor productivity growth and were 14 percent more likely to invest in fixed

211、assets.Frontier firms invest more in innovation,spend more on research and development,and are more likely to have a website or license foreign technology(figure 2.4).The higher levels of investments in innovation and the hiring of skilled labor are consistent with the findings that manufacturing pr

212、oductivity in Bangladesh is driven by greater efficiency improvements within firms rather than by the allocative efficiency of markets.Figure 2.1 A small group of firms in Bangladesh is significantly more productive than the restFigure 2.2 Frontier firms are substantially more productive than non-fr

213、ontier firmsSource:World Bank Enterprise Survey 2022,https:/www.enterprisesurveys.org.Source:World Bank Enterprise Survey 2022,https:/www.enterprisesurveys.org.Note:TFPR=total factor productivity revenue.Labor productivity distribution among all 990 World Bank Enterprise Survey firms.Since the depen

214、dent variable is the log of productivity,the coefficients effect on actual productivity(rather than its log)is obtained by exponentiating the coefficient.This results in values of 10.02 and 4.47 for labor productivity and total factor productivity,respectively,indicating the corresponding multiplica

215、tive changes in productivity.252.Frontier firms Frontier Firms and Job Creation in BangladeshFigure 2.3 Frontier firms have outperformed their competitors in recent years,201922Figure 2.5 Total sales:frontier versus non-frontier firms,2013 Figure 2.4 Frontier firms innovate moreFigure 2.6 Total sale

216、s:frontier versus non-frontier firms,2022Source:World Bank Enterprise Survey 2022,https:/www.enterprisesurveys.org.Note:Results are based on regressions of different firm performance variables on a dummy for the most productive frontier firms,controlling for firms size,age,location,and economic sect

217、or.Source:World Bank Enterprise Survey 2013,https:/www.enterprisesurveys.org.Source:World Bank Enterprise Survey 2022,https:/www.enterprisesurveys.org.Note:Results are based on regressions of different firm performance variables on a dummy for the most productive frontier firms,controlling for firms

218、 size,age,location,and economic sector.Source:World Bank Enterprise Survey 2022,https:/www.enterprisesurveys.org.133.31114Real annualsales growth(%)N=911Annual employment growth(%)N=946Annual labor productivity growth(%)N=907Buying fixed assets(%)N=9460Coefficients on:Frontier firm=1Frontier41%Non-f

219、rontier59%Non-frontier74%Frontier26%0.0120.0690.0270.120.190.00036Introduced newproduct or service=1N=956Introduced new/significantly improved process=1N=951Spent on R&D=1N=951Use technology froma foreign company=1N=524Has international quality certification=1N=956Has its own website=1N=9560Coeffici

220、ents on:Frontier firm=1Frontier firms account for an increasingly large share of total revenues among formal firms in Bangladesh.The frontier sector made up three-quarters of all revenues of formal firms in Bangladesh in 2022,up from 41 percent in 2013(figures 2.5 and 2.6).This represents an 80 perc

221、ent increase in the share of these firms in the total sales of all firms in the formal sector.The ready-made garments(RMG)sector has become increasingly dominant in the group of frontier firms.In 2022,the garments sector alone made up almost one-half of all revenues of formal firms in Bangladesh and

222、 61 percent of the revenue of the frontier segment.This represents a fivefold increase between 2013 and 2022 and has outweighed the chemicals and pharmaceuticals sector,which was the predominant frontier sector in 2013.Other sectors within the frontier firms in 2022 were other services,including per

223、sonal and business services,representing 15 percent of total revenues.The remaining sectors of food production,retail,textiles,and other manufacturing each contributed less than 10 percent in 2022.262.Frontier firms Frontier Firms and Job Creation in BangladeshFigure 2.7 The garments sector grew fro

224、m representing less than one-quarter of frontier firms sales in 2013.Figure 2.9 The garments sector constituted about one-half of non-frontier firms sales in 2013.Figure 2.8 .to almost two-thirds of frontier firms sales in 2022Figure 2.10 .and continued to make up roughly one-half of non-frontier fi

225、rms sales in 2022Source:World Bank Enterprise Survey 2013,https:/www.enterprisesurveys.org.Source:World Bank Enterprise Survey 2013,https:/www.enterprisesurveys.org.Source:World Bank Enterprise Survey 2022,https:/www.enterprisesurveys.org.Source:World Bank Enterprise Survey 2022,https:/www.enterpris

226、esurveys.org.The RMG sector is also heavily present in the non-frontier segment,signaling a significant productivity divide within the sector.The RMG sector made up about one-half of the non-frontier segment in terms of revenue in both 2013 and 2022(figures 2.9 and 2.10).The strong presence of RMG i

227、n both the frontier and non-frontier is consistent with the polarization within the sector as described in a report by Berg and others(2021)as follows:“Bangladeshs advanced manufacturers are characterized by a high degree of entrepreneurship and strategic management;these firms have made investments

228、 in productivity improvement,digitization,automation,and sustainability,and they operate according to international best practices.In contrast,the small operators that make up the majority of the market typically focus on CMT typically less automated cut,make,and trim mode of operation.”It is also i

229、n line with the findings of an ADB(2016)report according to which over 90 percent of the employment in the RMG sector was informal despite its overall export orientation.Non-frontier60%Chemicals and Pharmaceuticals17%Garments8%Other Manufacturing5%Food3%Motor Vehicles&2%Leather2%Other Services2%Reta

230、il1%Furniture0%Frontier40%Garments36%OtherManufactur15%Chemicals&Pharm.3%Food2%Leather Products2%Other Services1%Retail0%Motor Vehicles0%Furniture1%Textiles1%Retail1%Food4%Other Manufactur8%Other Services15%Garments45%Non-Frontier26%Frontier74%Garments17%Textiles3%Other Manufacturing3%Retail1%Other

231、Services1%Food1%Hotels0%272.Frontier firms Frontier Firms and Job Creation in BangladeshFrontier firms make up most of Bangladeshs exports.In 2022,frontier firms made up 69 percent of Bangladeshs exports,up from 37 percent 10 years earlier(figure 2.11).Over the same period,the number of exporting fi

232、rms in total has halved from 25 percent to 13 percent(figure 2.12).Taken together,these trends show an increased concentration of total export revenues among a narrow segment within the group of frontier firms and suggest that an increasing share of firms are either unable or unwilling to export.Fig

233、ure 2.11 Frontier firms dominated exports in 2022Figure 2.12The overall number of exporting firms has declined since 2013Source:World Bank Enterprise Survey 2013 and 2022,https:/www.enterprisesurveys.org.Note:Exports include both direct and indirect exports.Source:World Bank Enterprise Survey 2013 a

234、nd 2022,https:/www.enterprisesurveys.org.Note:Exports include both direct and indirect exports.Share of total exports(%)010203040506070Non-frontierFrontier802013202263313769752587137822881261398317Share of firms exporting(%)0102030405060708090100All firmsNon-frontierFrontierNot exportingExportingNot

235、 exportingExporting20132022282.Frontier firms Frontier Firms and Job Creation in BangladeshFigure 2.13 Share of total employment:frontier firms versus other firms,2013Figure 2.15 Frontier firms employment by sector,2013 Figure 2.14 Share of total employment:frontier firms versus other firms,2022Figu

236、re 2.16 Frontier firms employment by sector,2022Source:World Bank Enterprise Surveys 2013,2022,https:/www.enterprisesurveys.org.Note:Employment is the number of permanent,full-time employees.Source:World Bank Enterprise Surveys 2013,2022,https:/www.enterprisesurveys.org.Note:Employment is the number

237、 of permanent,full-time employees.Source:World Bank Enterprise Surveys 2013,2022,https:/www.enterprisesurveys.org.Note:Employment is the number of permanent,full-time employees.Source:World Bank Enterprise Surveys 2013,2022,https:/www.enterprisesurveys.org.Note:Employment is the number of permanent,

238、full-time employees.Non-frontier95%Frontier5%Garments2%Leather1%Other Manufacturing1%Food1%Chemicals0%Furniture0%Motor Vehicles&0%Retail0%Other Services0%Non-frontier95%Non-frontier85%Frontier15%Garments8%Other Services3%Other Manufacturing2%Food1%Textiles1%Retail0%Non-frontier85%2.2 Frontier firms

239、and job creation The problem is that while frontier firms generate three-quarters of Bangladeshs sales,they account for only 15 percent of all formal employment(figure 2.14).The gap between revenues and jobs is even starker in the RMG sector.RMG frontier firms generate almost half of Bangladeshs tot

240、al revenues but only one out of 12 formal private sector jobs,which means that empowering other firms and activities is critical from the point of view of creating more and better-paid jobs(figure 2.16).292.Frontier firms Frontier Firms and Job Creation in BangladeshAmong non-frontier firms,employme

241、nt grew in services and declined in manufacturing.Between 2013 and 2022,the share of employment in services tripled,from 5 percent to 15 percent(figures 2.17 and 2.18).The RMG sector remained the dominant employer in the non-frontier segment,but its share declined from 58 percent in 2013 to 53 perce

242、nt in 2022.Meanwhile,the share of other manufacturing firms declined more sharply,from 26 percent to 8 percent over the same period.One manufacturing sector that saw a notable jump in employment growth was textiles(the fabric from which garments are made),rising from almost zero to 9 percent.Figure

243、2.17 Non-frontier firms employment by sector,2013Figure 2.18 Non-frontier firms employment by sector,2022Figure 2.19 Most manufacturing jobs are in younger non-frontier firmsSource:World Bank Enterprise Surveys 2013,2022,https:/www.enterprisesurveys.org.Note:Employment is the number of permanent,ful

244、l-time employees.Source:World Bank Enterprise Surveys 2013,2022,https:/www.enterprisesurveys.org.Note:Employment is the number of permanent,full-time employees.Source:Bangladesh Bureau of Statistics,“Survey of Manufacturing Industries(SMI)-2019,”July 2020.Note:Total number of manufacturing employees

245、 by age group.Garments58%Other Manufactur26%Frontier5%Chemicals&Pharm.4%Other Services3%Food2%Furniture1%Leather Products 1%Retail0%Motor Vehicles0%Garments53%Frontier15%Textiles9%Other Manufacturing8%Retail6%Other Services5%Food3%Hotels1%0FrontierNon-Frontier100,000200,000300,000400,0000-45-910-141

246、5-2020+Within manufacturing,most jobs are created in younger non-frontier firms that started operating in the past 20 years.Formal private sector employment in the manufacturing sector is concentrated in younger manufacturing firms that do not operate at the productivity frontier(figure 2.19).Removi

247、ng the constraints facing these firms and any prospective entrants and enabling them to grow and become more productive is thus key to facilitate the creation of more productive jobs in the country.302.Frontier firms Frontier Firms and Job Creation in BangladeshFrontier firms have become much more c

248、apital-intensive over time,meaning that a much higher amount of capital is needed to create a job.Figure 2.20 shows the evolution of firms capital-to-worker ratio between 2013 and 2022 among frontier and non-frontier manufacturing firms.The capital intensity among garments firms grew by 70 percent b

249、etween 2013 and 2022;the capital intensity in the rest of the manufacturing sector increased even moreby 166 percent in the same period.In both cases,the substantial increase in the capitallabor ratio has been driven by frontier firms.Notably,while frontier firms in garments show the most substantia

250、l increase in capital intensity between 2013 and 2022,the capitallabor ratio among non-frontier garments firms scarcely changed during that period(figure 2.21).In other words,the labor intensity in frontier firms is substantially lower than that of their non-frontier counterparts,and the gap has wid

251、ened since 2013.Although increasing capital intensity raises labor productivity,it also implies that a significantly higher amount of capital is necessary for each job created in frontier firms.Also,although the increased use of imported inputs might explain part of the rise in capital intensity in

252、the RMG sector,the urgent need to create quality jobs elsewhere,particularly outside the frontier that accounts for most imported inputs,remains valid.Figure 2.20 The capital intensity in the garments sector is lower than among the rest of manufacturingFigure 2.21 Among frontier firms in garments,ca

253、pital intensity is higher and has grown at a pace similar to the rest of manufacturing Source:World Bank Enterprise Survey 2022,https:/www.enterprisesurveys.org.Note:Capital is proxied by the replacement value of machinery,vehicles,and equipment.Employment is the number of permanent,full-time employ

254、ees.Source:World Bank Enterprise Survey 2022,https:/www.enterprisesurveys.org.Note:Capital is proxied by the replacement value of machinery,vehicles,and equipment.Employment is the number of permanent,full-time employees.200,000400,000600,000800,0001,000,0001,200,0001,400,00020132022GarmentsRest of

255、Manufacturing001,000,0002,000,0003,000,00020132022Garments-FrontierGarments-Non-FrontierRest of Manufacturing -FrontierRest of Manufacturing-Non-FrontierConsistent with their higher labor productivity,frontier firms pay higher wages and employ more skilled workers.Frontier firms pay 42 percent highe

256、r wages than non-frontier firms that have a similar firm size and age and operate in the same state and sector(Figure 2.22).The higher wages also reflect their higher share of skilled production workers(5.4 percent more on average)than that of non-frontier firms.Figure 2.22 Frontier firms pay higher

257、 wages and employ more skilled workersSource:World Bank Enterprise Survey 2022,https:/www.enterprisesurveys.org.Note:Results are based on regressions of different firm characteristics on a dummy for the most productive frontier firms,controlling for firms size,age,location,and economic sector.0.425.

258、40.63.20.93Wages(ln.)N=947Share of skilled in all prod.workers(%)N=499Investment in equipment(ln.)N=151Investment in land and buildings(ln.)N=53Capital/Labor(ln.)N=5000Coefficients on:Frontier firm=1312.Frontier firms Frontier Firms and Job Creation in BangladeshOverall,economic growth in Bangladesh

259、 has been driven by a small group of very productive firms over the past 10 years,but there are too few of them.Frontier firms are about 11 times as productive on average as other firms.They are concentrated in the garments sector and generate most of Bangladeshs exports.Consistent with their higher

260、 labor productivity,frontier firms pay higher wages and employ more skilled workers than non-frontier firms.Although frontier firms account for most revenues in the formal private sector,they employ only one in seven workers.Within the RMG sector,labor intensity relative to revenue is even lower.Mea

261、nwhile,most jobs are being created in non-frontier services firms.In other words,frontier firms are creating productive,well-paid jobs,but given their capital intensity and reliance on high skills,they are unlikely to create sufficient productive and decent jobs to absorb a large segment of job seek

262、ers.323.The business environment Frontier Firms and Job Creation in Bangladesh3.The business environment What would it take for non-frontier firms in Bangladesh to grow faster and create more and better jobs?This chapter investigates whether the business environment in Bangladesh could be blamed,at

263、least in part,for its sluggish performance,either because of the complexity of the rules and deficiency in their implementation or because frontier firms can in fact overcome these hurdles more easily.The assessment is carried out under three topics:the quality of the business environment in Banglad

264、esh compared with peers and over time,the possible preferential lane for frontier firms,and,finally,the underlying reasons for the weaknesses in the design and implementation of rules.3.1 Quality of the business environment The business environment,a critical enabler of firms capacity to operate pro

265、ductively and create jobs,is particularly challenging in Bangladesh compared with that of its peers.For firms entering the market,clear,transparent,and accessible regulations facilitate the establishment of new businesses.While in operation,firms rely on the provision of basic and modern infrastruct

266、ure,access to finance,and a host of regulations governing payments,dispute settlement,and permits,among other factors.If firms need to exit,the availability of easy-to-handle bankruptcy procedures would enable them to redeploy their assets at a minimal cost to themselves,relevant stakeholders,and th

267、e economy at large.Against this backdrop,figure 3.1 demonstrates that Bangladesh,according to the most recent data from the Doing Business 2020 index,is 50 percent below the score of the frontier economies.In comparison to regional neighbors,such as India,Sri Lanka,and Pakistan,the lag is 18 percent

268、,29 percent,and 30 percent,respectively.333.The business environment Frontier Firms and Job Creation in BangladeshFigure 3.1 Bangladeshs score in the Doing Business index is the lowest compared with all peersFigure 3.2 The gap has widened between Bangladeshs Doing Business score and regional and inc

269、ome-group peers scores Source:Doing Business Indicators(archived database),World Bank,https:/archive.doingbusiness.org/en/doingbusiness.Source:Doing Business Indicators(archived database),World Bank,https:/archive.doingbusiness.org/en/doingbusiness.ThailandChinaTrkiyeIndiaViet NamIndonesiaNepalPhili

270、ppinesSri LankaPakistanNigeriaCambodiaBangladeshGap from top performer(%)010515202530354045508101218202027282930343848Doing Business scoreBangladeshSouth AsiaLower-middle-income countries4444414142434551525152535659535453545557580102030405060702014201520162017201820192020Bangladeshs overall score on

271、 the Doing Business index has not shown signs of improvement over time.Between 2014 and 2020,Bangladeshs score remained largely stable(figure 3.2).However,the gap between Bangladesh and the South Asian average widened significantly,doubling from 7 points in 2014 to 15 points in 2020.Similarly,the ga

272、p between Bangladesh and the lower-middle-income average increased from 9 points to 13 points.343.The business environment Frontier Firms and Job Creation in BangladeshBusiness regulations in Bangladesh are time consuming and cumbersome.The number of days to obtain licenses and the amount of time re

273、quired by senior management for compliance is relatively high compared with that for regional peers(figure 3.3).For instance,obtaining construction permits or import licenses takes on average 49 days,almost double that in India.Moreover,the ability of firms to access public procurement contracts,ope

274、rating licenses,import licenses,or construction permits depends on their willingness and ability to provide gifts in exchange for those regulatory services.Specifically,72 percent of firms reported that they were expected to provide a gift in exchange for obtaining an import license,which is twice a

275、s high as the share of firms in India(figure 3.4).Bangladeshi firms also more frequently report being expected to provide gifts in exchange for access to operating licenses and construction permits.Public procurement contracts are not always awarded competitively,and the value of expected gifts in e

276、xchange for contracts are reported to amount to 2 percent of the contract value,one of the highest shares among peer countries(figure 3.5).Figure 3.3 Firms time dealing with regulators and waiting for regulatory services exceeds those in peer countriesFigure 3.4 Bangladeshi firms report high inciden

277、ce of corrupt practices in regulatory servicesSource:World Bank Enterprise Survey 2022,https:/www.enterprisesurveys.org.Note:Only peer countries with data available are listed.Source:World Bank Enterprise Survey 2022 or latest available year for peer countries,https:/www.enterprisesurveys.org.Note:O

278、nly peer countries with data available are listed.Senior management time spent dealing with the requirements of government regulation(%)Days to obtain an operating licenseDays to obtain a construction-related permitDays to obtain an import license0102030405060PercentBangladeshCambodiaIndiaPhilippine

279、sViet NamChinaIndonesia13284949Firms expected to give gifts in meetings with tax officialsFirms expected to give gifts to get an operating licenseFirms expected to give gifts to get an import licenseFirms expected to give gifts to get a construction permit01020304050807060Share of firms(%)Bangladesh

280、IndiaPhilippinesViet NamChinaIndonesiaThailand353.The business environment Frontier Firms and Job Creation in BangladeshStarting a business in Bangladesh also imposes significant costs on firms.The main legislation governing firms includes the Rules of Business of 1996(revised in 2009)and the Compan

281、ies Act XVIII of 1994(amended in 2020 by Act No.7).These laws cover limited liability companies(LLCs),unlimited liability companies,and sole proprietorships.All business activities require a trade license,which is governed by the Local Government(City Corporation)Act 2009 and Municipal Taxation Rule

282、s;the trade license is categorized as a general trade license,commercial trade license(for retail suppliers),or manufacturing trade license.In addition to that requirement,companies may also need environmental and sector-specific permits.On the basis of consultations with stakeholders,the cost of st

283、arting a business in Bangladesh amounts to approximately US$10,000.This significant expense poses a challenge,particularly for new companies.The total includes registration with the Registrar of Joint Stock Companies and Firms,obtaining a trade license,and paying annual audit fees,regardless of the

284、size of firm revenues.For more than 50 percent of the firms under six years old,these costs exceed 10 percent of their annual revenues(figure 3.6).Figure 3.6 Start-up costs for a business are high,especially for younger firmsSource:World Bank Enterprise Survey 2022,https:/www.enterprisesurveys.org.N

285、ote:Young firms are those firms that started less than six years ago.0.2.4.6.82550Annual revenues(Tk,million)10%of firms annual revenuesPoor electricity services undermine productivity,investment,and competition.Power outages are frequent and costly for firms operating in Bangladesh relative to peer

286、s(figure 3.7).These outages lead to direct revenue losses for firms and inhibit their ability to make productivity-enhancing investments(figures 3.8 and 3.9).To mitigate the cost of power losses,many firms opt to acquire costly generators.This in turn constitutes an additional barrier to entry and s

287、ubstantially higher operating costs for existing firms,especially younger or less productive firms.Given that most generators run on gas,the recent spike in gas prices have further exacerbated the operating costs of generators and raised barriers to entry.Figure 3.5 The value of gifts expected in Ba

288、ngladesh for securing government contracts is relatively highSource:World Bank Enterprise Survey 2022 or latest available year for peer countries,https:/www.enterprisesurveys.org.Note:Only peer countries with data available are listed.Value of gift expected to secure a government contract(%of contra

289、ct value)00.511.522.5ThailandPhilippinesIndiaChinaBangladesh363.The business environment Frontier Firms and Job Creation in BangladeshFigure 3.8 Manufacturers with higher losses from power outages are less productiveFigure 3.9 Manufacturers with higher losses from power outages are less likely to in

290、vestSource:World Bank Enterprise Survey 2022,https:/www.enterprisesurveys.org.Note:The figure shows the result of a regression of sales per worker on a dummy for firms experiencing power outages and the share of losses due to power outages in total sales after controlling for sector,location,firm si

291、ze,and firm age.The information is available only for manufacturing firms.Source:World Bank Enterprise Survey 2022,https:/www.enterprisesurveys.org.Note:The figure shows the result of a regression of firms capital investments on a dummy for firms experiencing power outages and the share of losses du

292、e to power outages in total sales after controlling for sector,location,firm size,and firm age.The information is available only for manufacturing firms.Experienced electrical outagesLosses due to power outages(%sales)0Coefficient in regressions on:sales per worker(US$2009,logged)123Experienced elec

293、trical outagesLosses due to power outages(%sales)0Coefficient in regressions on:buying fixed assets10.5Figure 3.7 Twice as many Bangladeshi firms experience power outages compared with firms in peer countriesSource:World Bank Enterprise Survey 2022 or latest available for peer country,https:/www.ent

294、erprisesurveys.org.7126989Share of firms experiencing electrical outages(%)Number of electrical outages in a typical monthIf there were outages,average losses due to electrical outages(%of annual sales)Days to obtain an electrical connection(upon application)0102030405060708090PercentBangladeshCambo

295、diaIndiaPhilippinesViet NamChinaIndonesia1003.2 Preferential lane for frontier firms Although the adverse business environment poses considerable challenges for the average firm,frontier firms reportedly experience more favorable treatment.To demonstrate the differences in the experiences of frontie

296、r and non-frontier firms,figure 3.10 plots the wait times for a host of regulatory services,including the time to obtain an electrical connection,water connection,construction permit,373.The business environment Frontier Firms and Job Creation in BangladeshFigure 3.11 Regulatory services are faster

297、and more consistently implemented for garments firmsSource:World Bank Enterprise Survey 2022,https:/www.enterprisesurveys.org.Note:Coefficient of variation(variance divided by the mean)measures the variation in the implementation of the following regulations across firms in Bangladesh:time taken to

298、obtain an electrical connection,water connection,clearing exports through customs,clearing imports through customs,obtaining a construction permit,obtaining an operating license,and obtaining an import license.Observations per sector:garments 54,other manufacturing 76,services 29.Seven outliers in o

299、ther manufacturing and services:180730 days.050100150Estimated wait time in daysServicesOther manufacturingGarmentsFigure 3.10 Frontier firms spend less time dealing with business regulations compared with non-frontier firmsSource:World Bank Enterprise Survey 2022,https:/www.enterprisesurveys.org.No

300、te:Results are based on regressions of different policy variables on a dummy for the most productive frontier firms,controlling for firms size,age,location,and economic sector.Observations per group:frontier 26,non-frontier 111;29 outliers(7 in frontier:40210 days,21 in non-frontier:40730 days).1020

301、30Non-frontierFrontier0Estimated wait time in daysoperation license,import license,and clear imports and exports through customs.The figure shows the range from the 25th to the 75th percentile of firms,with a vertical line demarcating the median.The full range of wait times is shown in the whiskers.

302、The results show that non-frontier firms experience higher median wait times,with a distribution skewed on the side of longer wait times.Frontier firms face fewer losses from electrical power outages than non-frontier firms.The number of electrical outages is slightly less for frontier than for non-

303、frontier firms,but the duration is over 20 percent shorter for frontier firms(figure 3.12).As a result,frontier firms have a 1.5 percentage point lower sales loss caused by power outages than non-frontier firms do(figure 3.13).This provides a strong motivation for firms to seek more reliable electri

304、city services.In an interview,one large manufacturer in Bangladesh explained that they had provided their land at no cost to a private electricity producer next to their factory in exchange for The provision of regulatory services is even more differentiated when comparing wait times within and acro

305、ss sectors.On average,garments firms experience wait times for regulatory services that are about half as long as those faced by firms in other manufacturing and service sectors(figure 3.11).Within the garments industry,wait times are also more consistent across firms compared with other manufacturi

306、ng and especially services firms,where some firms face wait times of up to two years.Overall,these findings suggest that regulatory uncertainty is relatively high,especially outside of the garments sector,where firms tend to be less productive and non-frontier.Senior managers in frontier firms spend

307、 less time dealing with regulators than those in non-frontier firms.Being a frontier firm is associated with a 5 percentage point decrease in senior management time spent in dealing with government regulations,compared with non-frontier firms operating in the same sector and state and having a simil

308、ar firm size and age.Frontier firms also receive fewer inspections by tax officials than non-frontier firms.383.The business environment Frontier Firms and Job Creation in BangladeshFigure 3.12 Frontier firms endure fewer and shorter electricity cuts compared with non-frontier firmsFigure 3.13 Front

309、ier firms face fewer losses from power outages compared with non-frontier firmsFigure 3.14 Incidence of noncompetitive procurement for transport,utilities,and construction projectsSource:World Bank Enterprise Survey 2022,https:/www.enterprisesurveys.org.Source:World Bank Enterprise Survey 2022,https

310、:/www.enterprisesurveys.org.Note:Results are based on regressions of different policy variables on a dummy for the most productive frontier firms,controlling for firms size,age,location,and economic sector.Source:Survey of Manufacturing Industries,2019.Note:TUC=transport,utilities,and construction.F

311、rontier=above average share of sales by frontier firms.Number of observations:64 frontier above average,47 frontier below average;10 non-frontier above average,17 non-frontier below average.05101520253035HoursFrequency0510152025303540Non-frontierFrontierNumber of electrical outages in a typical mont

312、hAverage monthly duration(RHS)-.0023-2.4-1.5-.079Experienced electrical outages=1N=959Number of electrical outages in a typical monthN=954Losses due to power outages(%sales)N=959Electricity To Operations is an obstacle=1N=9540Coefficients on:Frontier firm=129.1%28.7%32.2%29.3%2627282930313233Average

313、 single bidding rate in TUC(%)Non-frontierFrontierAbove average TUC inputsBelow average TUC inputsThe higher quality of public services enjoyed by frontier firms is supported by more-competitive public procurement processes.A comparative analysis of procurement practices for transport,utilities,and

314、construction projects in locations where frontier firms operate reveals a striking disparitythat is,public procurement procedures for these infrastructure services are more competitive and transparent.This results in a markedly lower prevalence of single-bid procurement processeswhen municipalities

315、and economic activities relying on these services have a higher share of frontier firms(figure 3.14).Consequently,frontier firms tend to benefit from better-maintained infrastructure,more reliable utilities,and expedited construction projects,thus reinforcing their advantage over non-frontier firms.

316、potential preferential access to the generated electricity,exemplifying how in one instance,large,incumbent firms find ways to cope with the poor overall provision of electricity services.393.The business environment Frontier Firms and Job Creation in BangladeshFinally,in terms of legal status,front

317、ier firms tend to be LLCs and publicly listed companies(PLCs),which entails considerable advantages over non-frontier firms,which are typically sole proprietorships or partnerships(figures 3.15 and 3.16).LLC status means that firms are distinct legal entities,protecting owners personal assets from b

318、usiness liabilities,which encourages investment and risk taking.Unlike sole proprietorships,LLCs can also benefit from corporate tax advantages and other incentives,which can be reinvested into the business to fuel growth.Additionally,LLCs can more easily attract investors and secure financing becau

319、se they provide a more structured and reliable business framework.Unlike partnerships,LLCs do not impose joint liability on their members,allowing for clearer management and decision-making processes.This structure fosters a more stable environment that is conducive to scaling operations,expanding m

320、arkets,and enhancing overall productivity.Figure 3.15 Three-quarters of frontier firms are LLCs and PLCsFigure 3.16 Most non-frontier firms are sole proprietorships or partner-shipsSource:World Bank Enterprise Survey 2022,https:/www.enterprisesurveys.org.Note:LLC=limited liability company;PLC=public

321、ly listed company.Source:World Bank Enterprise Survey 2022,https:/www.enterprisesurveys.org.Note:LLC=limited liability company.Publicly listed company23%LLC45%Sole proprietorship16%Partnership14%Limited partnership2%Publicly listed company1%LLC6%Sole proprietorship70%Partnership23%Limited partnershi

322、p0%However,owing to the complex procedures for establishing an LLC,many firms opt for alternative registration statuses.Other business structures offer simpler registration processes but pose considerable disadvantages for firm operation and growth.Sole proprietorships,single-owner businesses open t

323、o any Bangladeshi citizen over the age of 18,are easier to establish than LLCs.Setting up a sole proprietorship involves obtaining clearance for a business name,securing a trade license,acquiring a tax identification number,and opening a bank account.However,sole proprietorships are not distinct leg

324、al entities,so the owner is fully liable for business operations and income.They cannot benefit from corporate tax advantages and face expansion difficulties because of capital limitations tied to personal finances and business profits.Partnerships,regulated by the Partnership Act of 1932,allow indi

325、viduals to share business profits and pool resources.Unlike companies,partnerships do not require directors,secretaries,or shareholders,giving partners greater control and full ownership.However,partners bear unlimited liability.Among the frontier segment,45 percent of revenues accrue to LLCs and 23

326、 percent to PLCs.This is a very different distribution than with non-frontier firms,where the total share of revenues is dominated by sole proprietorships and partnerships.403.The business environment Frontier Firms and Job Creation in BangladeshFigure 3.17 A higher share of frontier firms have eith

327、er a line of credit or a loan from a financial institutionFigure 3.18 Bangladesh has a low score of regulatory qualitySource:World Bank Enterprise Survey 2022,https:/www.enterprisesurveys.org.Source:Worldwide Governance Indicators,World Bank,https:/www.worldbank.org/en/publication/worldwide-governan

328、ce-indicators.Share of firms with a line of credit or loan(%)010515202530354045FrontierNon-frontier2942Regulatory quality score182551543637595843010203040506070BangladeshCambodiaIndiaPhilippinesViet NamChinaIndonesiaThailandTrkiyeFinally,frontier firms also enjoy greater access to credit.Only 29 per

329、cent of non-frontier firms report having a bank loan or a line of credit with a financial institution compared with 42 percent of frontier firms(figure 3.17).Part of this disparity is due to legitimate differences in credit-worthiness,but it also owes to a greater availability of dedicated concessio

330、nal credit available to frontier firms,as will be discussed in section 4.1.3.3 Administrative weaknesses Why do frontier firms experience a more favorable business environment than non-frontier firms?The answer likely has to do with three interlinked and mutually reinforcing features of the business

331、 environment:the complexity of the regulations themselves,the room they create for discretion by officials in implementation,and weak state institutional capacity to design and enforce the regulations.These drawbacks enable frontier firms that are better resourced and connected to have an edge over

332、non-frontier firms.First,on the rules themselves,the Worldwide Governance Indicators(WGI)offer a telling snapshot of the overall quality of regulations in Bangladesh(figure 3.18).Compared with peers,Bangladesh scores at the 18th percentile of all countries on their score for regulatory quality,which

333、 is based on the perception of the governments ability to design sound policies and regulations that promote private sector development.Second,the long wait times and variations in accessing regulatory services suggest a high degree of discretion.The regulatory services included in this matrix are for firms wait times for obtaining an electrical connection,water connection,clearing imports and exp