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This blog is on how to develop meaningful, relevant and cost-effective indicators on local economic development for use by governments (in particular local) and their development partners.It is part of an ongoing consultancy for UNCDF and will focus on three thematic areas:

Economic governance. The rational for focussing on economic governance is that such governance is needed to correct a universally accepted market failure. Most economic transaction, especially those that are repeated over time and with only partial known attributes of the transacted products, offer opportunities for one or both or all of the parties to cheat for their own gain at the expense of the others. In turn, the expectation of suffering a loss due to such cheating can make all prospective participants unwilling to enter into a transaction that would benefit them all if the cheating could be checked. In addition to the cheating example economic governance may also be needed to ensure that negative externalities from economic activities, e.g. to protect the environment from pollution. Attempts to measure economic governance tend to focus on business regulations and the legal environment. Hence indicators usually also focus on these relatively easily observable indicators (e.g. number of days to get a permit as found in Doing Business Reports). For a critique of this focus have a look at Dani Rodrik’s ‘Second Best Institutions’

Enterprise Development. In most developing countries, governments are emphasising the private sector as the engine of growth, employment and ultimately poverty reduction. Thus enterprise development is a crucial ingredient of many development strategies and plans. Under this theme I will consequently try to analyse what constitute good measures for enterprise and provide example of how government and other development partner can encourage the creation, expansion and formalisation of enterprises. The role of infrastructure and access to business services will probably be important. Especially business climate surveys have been used as indicators for enterprise development, however one need to ascertain demand and costs.Possible indicators could include: changes;tax receipts from private sector ; rate of start-ups; number of employees. However a challenge will be to develop indicators with a reasonable robust level of causality between government (and donor) actions and the indicators.

Locality development centres around the need to make a specific locality (e.g. district, region or cluster of companies in a zone which may cross political boundaries) sufficiently conducive for businesses to start and expand. Traditionally the focus has been on furnishing a locality with basic amenities such as economic infrastructure but increasingly attention has been broadened to include ‘cluster development’ i.e. encouraging both competitive and complementing businesses to develop within a given locality. Conceptually Michael Porter has developed part of the theoretical foundations, which is now widely used in practice (for example see hereand here). However, defining appropriate indicators for measuring effectiveness of governments is still challenging.

My work will start in earnest in June and I plan to present a paper in early autumn at a UNCDF supported conference. I welcome comments and suggestions and will post on this blog to present progress regularly.