Ease of Doing Business Index
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The Ease of Doing Business Index is an index created by the World Bank.[1] Higher rankings indicate better, usually simpler, regulations for businesses and stronger protections of property rights. Empirical research funded by the World Bank shows that the effect of improving these regulations on economic growth is strong.[2]
"Empirical research is needed to establish the optimal level of business regulation—for example, what the duration of court procedures should be and what the optimal degree of social protection is. The indicators compiled in the Doing Business project allow such research to take place. Since the start of the project in November 2001, more than 800 academic papers have used one or more indicators constructed in Doing Business and the related background papers by its authors."[3]
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[edit] Methodology
The index is based on the study of laws and regulations, with the input and verification by more than 5,000 government officials, lawyers, business consultants, accountants and other professionals who routinely advise on or administer legal and regulatory requirements.
The Ease of Doing Business index is meant to measure regulations directly affecting businesses and does not directly measure more general conditions such as a nation's proximity to large markets, quality of infrastructure, inflation, or crime. A nation's ranking on the index is based on the average of 10 subindices:
- Starting a business - Procedures, time, cost and minimum capital to open a new business
- Dealing with licenses - Procedures, time and cost of business inspections and licensing (construction industry)
- Hiring and firing workers - Difficulty of hiring index, rigidity of hours of index, difficulty of firing index, hiring cost and firing cost
- Registering property - Procedures, time and cost to register commercial real estate
- Getting credit - Strength of legal rights index, depth of credit information index
- Protecting investors - Indices on the extent of disclosure, extent of director liability and ease of shareholder suits
- Paying taxes - Number of taxes paid, hours per year spent preparing tax returns and total tax payable as share of gross profit
- Trading across borders - Number of documents, number of signatures and time necessary to export and import
- Enforcing contracts - Procedures, time and cost to enforce a debt contract
- Closing a business - Time and cost to close down a business, and recovery rate[4]
Looking at one example, Australia, the best performing nation on the first subindex "Starting a business", there are 2 procedures required to start a business and taking on average 2 days to complete. The official cost is 0.8% of the Gross National Income per capita. There are no minimum capital required. In Guinea-Bissau, the second worst performing nation on the first subindex, there are 17 procedures required to start a business taking 233 days to complete. The official cost is 255.5% of the gross national income per capita. A minimum capital of 1006.6% of the gross national income per capita is required.
While fewer and simpler regulations often imply higher rankings, this is not always the case. Protecting the rights of creditors and investors, as well as establishing or upgrading property and credit registries, may mean that more regulation is needed.
[edit] Research and influence
More than 800 academic papers have used data from the index.[5] The effect of improving regulations on economic growth is very strong. Moving from the worst one-fourth of nations to the best one-fourth implies a 2.3 percentage point increase in annual growth.[6]
The various subcomponents of the index in themselves provide concrete suggestions for improvement. Many of them may be relatively easy to implement and uncontroversial (except perhaps among corrupt officials who may gain from onerous regulations requiring bribes to bypass). As such, the index has influenced many nations to improve their regulations. Several have explicitly targeted to reach a minimum position on the index, for example the top 25 list. Between April 2006 and June 2007 there were 200 reforms in 98 economies. The 10 top reformers were Egypt, Croatia, Ghana, FYR Macedonia, Georgia, Colombia, Saudi Arabia, Kenya, China, and Bulgaria. Several nations did the opposite. They include Venezuela and Zimbabwe.[7]
The correlations between the subindices are low, which suggest that countries rarely score universally well or universally badly on the indicators. In other words, there is usually much room for partial reform even in the best ranking nations.[8]
The annual Reformers' Club event brings together individuals from top reformer countries who have been instrumental in initiating and implementing business environment reform. These reformers are acknowledged for their success in improving the ease of doing business in their country.[9] Presentations and case studies are available online.[10]
Somewhat similar annual reports are the Indices of Economic Freedom and the Global Competitiveness Report. They, especially the later, look at many more factors that affect economic growth, like inflation and infrastructure. These factors may however be more subjective and diffuse since many are measured using surveys and they may be more difficult to change quickly compared to regulations.
[edit] Criticism
The Doing Business methodology regarding labor regulations has been criticized because of the support for flexible employment regulations.[11] For instance, the easier it is to dismiss a redundant worker for economic reasons in a country, the more one goes up in the rankings. The Employing Workers index was revised in Doing Business 2008 to be in full compliance with the 188 ILO conventions. A country can have all ILO conventions ratified and still rank #1 on the Ease of Employing Workers.
A new unpublished study commissioned by the Norwegian government alleges methodological weaknesses, an uncertainty in the ability of the indicators to capture the underlying business climate, and a general worry that many countries may find it easier to change their ranking in Doing Business than to change the underlying business environment.[12].
However, the analysis in this study relies on incorrect statistical procedure, making its findings and recommendations suspect. In particular, the authors of the study use Bayesian probabilities to argue that all indicators in Doing Business have an uncertainty range. This may be true for the time estimates, but is not true for number of procedures or cost figures, which are drawn from the laws and regulations of each country. This incorrect application artificially blows up the supposed uncertainty intervals around Doing Business indicators.
[edit] Ranking
Ranking of all nations from 2008 report (2006/04-2007/06): [13]
[edit] See also
[edit] Notes
- ^ Home - Doing Business - The World Bank Group
- ^ http://www.doingbusiness.org/documents/growthpaper_03_17.pdf
- ^ Ease of doing business: An appendix, Page 93.
- ^ http://www.doingbusiness.org/PapersLinks/Open.aspx?id=6543
- ^ http://www.doingbusiness.org/PapersLinks/Open.aspx?id=6543
- ^ http://rru.worldbank.org/PapersLinks/resources.aspx?id=6923
- ^ http://www.doingbusiness.org/documents/DB-2008-overview.pdf
- ^ http://www.doingbusiness.org/PapersLinks/Open.aspx?id=6543
- ^ Reformers Club Home
- ^ Reformers Club Case Studies
- ^ ITUC-CSI-IGB - International Trade Union Confederation
- ^ http://ifiwatchnet.org/sites/ifiwatchnet.org/files/Doing%20Business_ESOPanalysis.pdf
- ^ doingbusiness.org - Economy Rankings
[edit] External links
- doingbusiness.org – Doing business map
