ⓘ Ease of doing business index
The ease of doing business index is an index created by Simeon Djankov, an economist at the Central and Eastern Europe sector of the World Bank Group. The academic research for the report was done jointly with professors Oliver Hart and Andrei Shleifer. Higher rankings indicate better, usually simpler, regulations for businesses and stronger protections of property rights. Empirical research funded by the World Bank to justify their work show that the economic growth impact of improving these regulations is strong. An example of such empirical research is a paper on business regulation and poverty, published in Economics Letters.
"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 3.000 academic papers have used one or more indicators constructed in Doing Business and the related background papers by its authors."
The report is, above all, a benchmark study of regulation. The survey consists of a questionnaire designed by the Doing Business team with the assistance of academic advisers. The questionnaire centers on a simple business case that ensures comparability across economies and over time. The survey also bases assumptions on the legal form of the business, size, location, and nature of its operations. 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 nations proximity to large markets, quality of infrastructure, inflation, or crime.
The next step of gathering data surveys of over 12.500 expert contributors in 190 countries who deal with business regulations in their day-to-day work. These individuals interact with the Doing Business team in conference calls, written correspondence, and visits by the global team. For the 2017 report, team members visited 34 economies to verify data and to recruit respondents. Data from the survey is subjected to several rounds of verification. The surveys are not a statistical sample, and the results are interpreted and cross-checked for consistency before being included in the report. Results are also validated with the relevant government before publication. Respondents fill out written surveys and provide references to the relevant laws, regulations, and fees based on standardized case scenarios with specific assumptions, such as the business being located in the largest business city of the economy.
A nations ranking on the index is based on the average of 10 subindices:
- Getting electricity – procedures, time, and cost required for a business to obtain a permanent electricity connection for a newly constructed warehouse
- Dealing with construction permits – Procedures, time, and cost to build a warehouse
- Resolving insolvency – The time, cost, and recovery rate % under bankruptcy proceeding
- Getting credit – Strength of legal rights index, depth of credit information index
- Trading across borders – Number of documents, cost, and time necessary to export and import
- Paying taxes – Number of taxes paid, hours per year spent preparing tax returns, and total tax payable as share of gross profit
- Starting a business – Procedures, time, cost, and minimum capital to open a new business
- Registering property – Procedures, time, and cost to register commercial real estate
- Enforcing contracts – Procedures, time, and cost to enforce a debt contract
- Protecting investors – Indices on the extent of disclosure, extent of director liability, and ease of shareholder suits
The Doing Business project also offers information on following datasets:
- Transparency in business regulation – Data on the accessibility of regulatory information measures how easy it is to access fee schedules for 4 regulatory processes in the largest business city of an economy
- Distance to frontier – Shows the distance of each economy to the "frontier," which represents the highest performance observed on each of the indicators across all economies included since each indicator was included in Doing Business
- Good practices – Provide insights into how governments have improved the regulatory environment in the past in the areas measured by Doing Business
- Entrepreneurship – Measures entrepreneurial activity. The data is collected directly from 130 company registrars on the number of newly registered firms over the past seven years
For example, according to the Doing Business DB 2013 report, Canada ranked third on the first subindex "Starting a business" behind only New Zealand and Australia. In Canada there is 1 procedure required to start a business which takes on average 5 days to complete. The official cost is 0.4% of the gross national income per capita. There is no minimum capital requirement. By contrast, in Chad which ranked among the worst 181st out of 185 on this same subindex, there are 9 procedures required to start a business taking 62 days to complete. The official cost is 202% of the gross national income per capita. A minimum capital investment of 289.4% 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.
In most indicators, the case study refers to a small domestically-owned manufacturing company - hence the direct relevance of the indicators to foreign investors and large companies is limited. DB uses a simple averaging approach for weighing sub-indicators and calculating rankings. A detailed explanation of every indicator can be found through the DB website, and a.xls archive that simulates reforms.
Some caveats regarding the rankings and main information presented have to be considered by every user of the report. Mainly:
- Doing Business does not cover all the regulation, or all the regulatory requirements. Other types of regulation such as financial market, environment, or intellectual property regulations that are relevant for the private sector are not considered.
- Doing Business does not consider the strengths and weaknesses of neither the global financial system, nor the financial system of every country. It also doesnt consider the state of the finances of the government of every country.
- Doing Business does not measure all aspects of the business environment that matter to firm or investors, such as the macroeconomic conditions, or the level of employment, corruption, stability or poverty, in every country.
The Doing Business report is not intended as a complete assessment of competitiveness or of the business environment of a country and should rather be considered as a proxy of the regulatory framework faced by the private sector in a country.
The Doing Business report has its origins in a paper first published in the Quarterly Journal of Economics by Simeon Djankov, Rafael La Porta, Florencio Lopez-de-Silanes and Andrei Shleifer called "The Regulation of Entry" in 2002. The paper presented data on the regulation of entry of start-up firms in 85 countries covering the number of procedures, official time and official cost that a start-up must bear before it could operate legally. The main findings of the paper were that: "Countries with heavier regulation of entry have higher corruption and larger unofficial economies, but no better quality of public or private goods. Countries with more democratic and limited governments have lighter regulation of entry." The paper became widely known because it provided quantitative evidence that entry regulation benefits politicians and bureaucrats without adding value to the private sector, or granting any additional protection.
Several countries have launched reforms to improve their rankings. These efforts are motivated to a great scope by the fact that the World Bank Group publishes the data, and hence coverage by the media and the private sector every year. Also, Doing Business highlights every year the successful reforms carried out by each country. Since The Regulation of Entry was published, Simeon Djankov and Andrei Shleifer have published eight other academic studies, one for each set of indicators covered by the report.
In 2013, Doing Business covered regulations measured from June 2011 through May 2012. Over the previous decade, the reports recorded nearly 2.000 regulatory reforms implemented by 180 economies.
- Poland was the global top improver in the past year. It enhanced the ease of doing business through four institutional or regulatory reforms, making it easier to register property, pay taxes, enforce contracts, and resolve insolvency.
- Singapore topped the global ranking on the ease of doing business for the seventh consecutive year, followed by Hong Kong SAR; New Zealand; the United States; and Denmark. Georgia was a new entrant to the top 10.
- Worldwide, 108 economies implemented 201 regulatory reforms in 2011/12 making it easier to do business as measured by Doing Business. Reform efforts globally have focused on making it easier to start a new business, increasing the efficiency of tax administration and facilitating trade across international borders. Of the 201 regulatory reforms recorded in the past year, 44% focused on these 3 policy areas alone.
In 2014 Doing Business covered regulations measured from June 2012 through May 2013 in 189 economies.
- 114 economies adopted 238 regulatory reforms in 2012/13 the reforms increased of 18% compared to the previous year.
- Singapore is the first economy of the global ranking followed by Hong Kong SAR, New Zealand, the United States, Denmark, Malaysia, South Korea, Georgia, Norway, and the United Kingdom.
- For the first time data about Libya, Myanmar, San Marino, and South Sudan were collected.
In 2015, Doing Business covered regulations measured from June 2013 through June 2014 in 189 economies. For the first time this year, Doing Business collected data for 2 cities in 11 economies with more than 100 million inhabitants. These economies include: Bangladesh, Brazil, China, India, Indonesia, Japan, Mexico, Nigeria, Pakistan, the Russian Federation, and the United States. The added city enables a sub-national comparison and benchmarking against other large cities.
3. Research and influence
More than 3.000 academic papers have used data from the index. The effect of improving regulations on economic growth is claimed to be 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. Another 7.000 working papers in economics and social science departments use the data from the Doing Business report. The 2016 Nobel Prize Winner in Economics Oliver Hart economist is among the authors of such papers.
The various sub-components 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.
Somewhat similar annual reports are the Indices of Economic Freedom and the Global Competitiveness Report. They, especially the latter, 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.
A November 2017 EconTalk podcast explains the lasting influence in academia and policy circles of the Doing Business report.
4. Doing Business Report
The Doing Business Report DB is an annually published report which was developed by a team led by Djankov in 2003. It has been elaborated by the World Bank Group since 2003 every year that is aimed to measure the costs to firms of business regulations in 190 countries. The study has become one of the flagship knowledge products of the World Bank Group in the field of private sector development, and is claimed to have motivated the design of several regulatory reforms in developing countries. The study presents every year a detailed analysis of costs, requirements and procedures a specific type of private firm is subject in all countries, and then, creates rankings for every country. The study is also backed up by broad communication efforts, and by creating rankings, the study spotlights countries and leaders that are promoting reforms.
The DB has been widely known and used by academics, policy-makers, politicians, development experts, journalists, and the business community to highlight red tape and promote reforms. As stated by the IEG study from the World Bank:
For country authorities, it sheds a bright, sometimes unflattering, light on regulatory aspects of their business climate. For business interests, it has helped to catalyze debates and dialogue about reform. For the World Bank Group, it demonstrates an ability to provide global knowledge, independent of resource transfer and conditionality. The annual exercise generates information that is relevant and useful.”
According to the DB, regulation does matter for the development of the private sectors, and several reforms are suggested across the report in order to promote the development of the private sector and enable the business environment. Some highlighted findings of the DB are:
- Lower costs of entry encourage entrepreneurship, enhance firm productivity, and reduce corruption.
- Simple start-up translates into greater employment opportunities.
- Lower barriers to start-up are associated with a smaller informal sector.
4.1. Doing Business Report Contents
In 2017, the study contains quantitative measures of regulations for starting a business, dealing with construction permits, employing workers, registering property, getting credit, protecting investors, taxes, trading across borders, enforcing contracts, getting an electricity connection, and closing a business. As stated in the introduction of the study, "A fundamental premise of DB is that economic activity requires good rules. These include rules that establish and clarify property rights and reduce the costs of resolving disputes, rules that increase the predictability of economic interactions, and rules that provide contractual partners with core protections against abuse."
4.2. Doing Business Report Evaluation
Doing Business is a controversial study, with passionate critics and devoted fans. As recognized by the Independent Evaluation Group of the World Bank, some have questioned the reliability and objectivity of its measurements while others doubt the relevance of the issues it addresses or fear it may unduly dominate countries reform agendas at the expense of more crucial development objectives. Attention given to the indicators may inadvertently signal that the World Bank Group values less burdensome business regulations more highly than its other strategies for poverty reduction and sustainable development.
According to Snodgrass, several limitations are present in the DB studies and have to be kept in mind when using the study:
- Transactions and fees to be cost out are very specifically defined. The costs of other types of transactions may differ.
- To achieve cross-country standardization respondents are asked to give estimates for a limited liability company of a specific size. Costs for other forms and scales of businesses may differ.
- The indicators and measures are referred to the costs, requirements, and fees of doing business in the countrys largest business city; thus conditions elsewhere within the country may differ.
- The estimates assume that a business knows what is required and does not waste time. Satisfying regulatory requirements will obviously take longer if the business lacks information or is unable to follow up promptly. A related point here is that DB may not understand "work-arounds", "facilitating fees", and "learning time" that speed or delay approvals and causes variation costs.
- The cost estimates come from individuals identified as expert respondents. Sometimes the estimates given by such individuals may differ with other experts and with public officials. If so, the responses are cross-checked for consistency.
4.3. Doing Business Report Related studies
Published now for seventeen years, the DB has originated a growing body of research on how performance on DB indicators, and reforms generated by the reports, related to specific development desirable outcomes. As stated by the DB 2010, about "405 articles have been published in peer-reviewed academic journals, and about 1143 working papers are available through Google Scholar".
The DB has acknowledged the limitation of getting data from one city to give information and a ranking valid for all the country. Several regional and sub-national studies have been carried out using the Doing Business methodology to assess variations within countries and regions across different cities, including sub-national studies for countries like Brazil, Mexico, and Colombia, and regional studies for the Caribbean, the Arab World, Bulgaria, and other south eastern European countries. All studies are available from the DB website.
DB has been widely used as a study to measure competitiveness. However, regulation rather than competitiveness is the main objective in the DB. Other studies that are also used to measure competitiveness and recognized as business enabling environment ranking systems are the Global Competitiveness Index, the Index of Economic Freedom, and the Global Entrepreneurship Monitor, among others.
5. 2018 Manipulation Scandal
On 12 January 2018, Paul Romer, the World Banks chief economist, announced that past releases of the index would be corrected and recalculated going back at least four years. Romer apologised to Chile, saying that the former director of the group responsible for the index had repeatedly manipulated its methodology, unfairly penalising the countrys rankings during the administration of left-wing President Michelle Bachelet. In response, Bachelet announced that Chile would formally request a complete investigation by the World Bank.
The most recent rankings come from the Doing Business 2020" report. Ranking of economies was introduced in the Doing Business 2006" report.
New Zealand has topped the Ease of Doing Business rankings in 2018, 2019 and 2020.
Singapore topped the Ease of Doing Business rankings in 2007–2016. Based on Singapores experience, IDA International is collaborating with public agencies in several countries in the areas such as ICT strategy, national infocomm planning and solutions implementation that can help increase the ease of doing business. One interesting fact is that although richer countries on average are ranked higher than poor countries, there are some remarkable exceptions. One such example is that Kuwait, one of the richest countries in the world, is lower ranked 97 than the much poorer countries Kenya ranked 61, Colombia ranked 65 and Uzbekistan ranked 76. Kuwait has addressed its poor business climate in its newest development plan, Kuwait Vision 2035.
* – same rank is for multiple jurisdictions ** – the State Union of Serbia and Montenegro
Note: Rankings at time of annual report publication. Rankings are subject to revision.
The Doing Business methodology regarding labor regulations was criticized by the International Trade Union Confederation because it favored flexible employment regulations. In early reports, the easier it was to dismiss a worker for economic reasons in a country, the more its rankings improved. The Employing Workers index was revised in Doing Business 2008 to be in full compliance with the 188 International Labour Organization conventions. It has subsequently been removed from the rankings. The ITUC debuted the Global Rights Index in 2014 as a response to the Doing Business report.
In 2008 the World Bank Groups Independent Evaluation Group, a semi-independent watchdog within the World Bank Group, published an evaluation of the Doing Business index. The report, Doing Business: An Independent Evaluation, contained both praise and criticism of Doing Business. The report recommended that the index be clearer about what is and is not measured, disclose changes to published data, recruit more informants, and simplify the Paying Taxes indicator.
In April 2009 the World Bank issued a note with revisions to the Employing Workers index. The note explained that scoring for the "Employing Workers" indicator would be updated in Doing Business 2010 to give favorable scores for complying with relevant ILO conventions. The Employing Workers indicator was also removed as a guidepost for Country Policy and Institutional Assessments, which help determine resources provided to IDA countries.
A 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.
In 2013, an independent panel appointed by the President of the World Bank and headed by Trevor Manuel of South Africa, issued a review expressing concern about the potential for the report and index to be misinterpreted, and the narrowness of the indicators and information base. It recommended that the report be retained, but that the aggregate rankings be removed and that a peer-review process be implemented among other things. Regarding the topics of Paying Taxes and Employing Workers, it noted that "The latter has already been excluded from the reports rankings. While there is a persuasive case for paying attention to these aspects of doing business, the Bank will need to carefully consider the correct way to assess the regulation and legal environment of these areas if these indicators are to be retained."
In 2018, another independent evaluation was commissioned by the World Bank Group. The evaluation praised the Doing Business report for its objectivity and focus on regulatory reform.
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