The World Bank says nearly half the world's population lives on less than $2 a day. In its annual World Development Report, which draws upon surveys of 30,000 firms in more than 50 developing countries, the bank stresses the need for governments to improve business and investment climates in order to reduce poverty and improve the lives of the poor.
The World Bank's emphasis in its 2005 World Development Report is that individuals, not just big business, can benefit from a better investment climate.
The Bank's Chief Economist, Francois Bourguignon, explains that stability and fair regulations for business translate to better lives. "Society as a whole also benefits from a better investment climate through more and better jobs, more affordable goods and services, and through the public services that can be financed from taxes on the growing private sector," he said.
The bank cites a study that shows the private sector, not government, accounts for more than 90 percent of jobs in developing countries.
Economists say the private sector can grow when the government provides stability for all businesses, from small-scale farmers to large firms.
The report asserts that governments can help create a good investment climate by cracking down on corruption and properly enforcing laws. Another role for the government, the report says, is to build public support for policy improvements, and ensure those improvements actually meet the needs of the people.
Bank economists also report that policy uncertainty -- situations where businesses do not know how the government will interpret or enforce laws -- is businesses' biggest concern.
Lead author of the report, Warrick Smith, says people benefit when policies are stable. "Work we've done shows if governments can improve predictability of their policies, that measure alone could increase the likelihood of new investment by over 30 percent, so we're not talking about small differences here, but quite large differences," he said.
Bank economists say the lives of the poor can improve even if the economic conditions are not ideal.
They cite China and India as examples of countries where there have been dramatic reductions in poverty, although the investment climates in those countries are far from perfect.
In India, the report says, the share of the population living on less than $1 per day fell from 54 percent to 35 percent in 20 years. In China, investment climate improvements over a 20-year span lifted 400 million people out of poverty.