This paper reviews the literature on the role of the investment
climate reforms in job creation. It finds that the
current landscape of employment and private sector activity
in developing countries indicates a number of potential
channels through which investment climate reforms can
positively affect job creation. However, rigorous empirical
evidence is scarce and most of the relevant studies focus
on business entry reforms with a few focusing on business
taxation and investment promotion activities. Overall,
there is evidence of job creation through business entry,
tax reforms, and investment promotion activity in developing
countries. Almost all of these evidences are from
quasi-experimental studies that are significant improvements
over conventional cross-country or cross-section
panel data analysis. Still, various endogeneity concerns in
these studies cannot be ruled out completely. In assessing
job effects, future research should provide deeper insights
on the gross versus net and short-run versus long-run job
effects and general equilibrium effects of various investment
climate reforms related to jobs, productivity, competition,
and other developmental outcomes. Another critical agenda
for future research is to shed light on which investment climate
reforms matter most for spurring the employment and
productivity growth of firms in developing countries. The
World Bank Group, in partnership with development partners
and client government countries, can play a significant
role in bridging the current knowledge gap by integrating
rigorous evaluation as an integral part of project design and
implementation, and improving data quality, particularly
through its information and communication technologies–led
private sector development reform initiatives.