Doing Business Report

The Doing Business Report (DBR or DB) is a study elaborated by the World Bank Group since 2004 every year that is aimed to measure the costs to firms of business regulations in 183 countries in 2010. 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.^[1]

The DBR 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.”.

Contents

In 2010, 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 and closing a business. Starting with the 2010 report, Doing Business plans to develop a new set of pilot indicators: getting electricity and worker protection. As stated in the introduction of the study, “A fundamental premise of DBRs 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”.

Origins

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.^[2]

Methodology

DB is above all, a benchmark study or regulation. The process of gathering data, is first based on the analysis and collecting process of fees, laws and regulations of every country. The second process of gathering information, consists of conducting a series of interviews and polls to lawyers, accountants and in some cases, public official in every country who deal routinely with the legal and regulatory requirements, or are at least, familiar with them. However, there is no clear number of minimum number of surveys required for every indicator in a specific country, thus, the main critic of the indicators: that they are not statistically relevant. DBR respondents fill out written surveys and provide references to the relevant laws, regulations and fees, based on standarized case scenarios with specific assumptions, such as the business being located in the largest business city of the economy.

DB uses a simple averaging approach for weighting 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.

As stated in the main body of the DBR 2010, some caveats regarding the rankings and main information presented have to be considered by every user of the report. Mainly:

• DBR 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.
• DBR does not consider the strengths and weakness neither of the global financial system, nor the financial system of every country. It also doesn’t consider the state of the finances of the government of every country.
• DBR 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.

This is why, the DBR is not a complete assessment of competitiveness or of the business environment of a country, and in any case, it should only be considered as a proxy of the regulatory framework faced by the private sector in a specific country.

Main Findings

According to the DBR, 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 DBR are:

• Lower barriers to start-up are associated with a smaller informal sector.
• Lower costs of entry encourage entrepreneurship, enhance firm productivity and reduce corruption.
• Simple start-up translates into greater employment opportunities.

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. 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. And the 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 Snodgarass, several limitations are present in the DB studies and have to be kept in mind when using the study:

• The indicators and measures are referred to the costs, requirements and fees of doing business in the country’s largest business city; thus conditions elsewhere within the country 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.
• Transactions and fees to be cost out are very specifically defined. The costs of other types of transactions may differ.
• The cost estimates come from individuals identified as expert respondents. Sometimes the estimates give by such individual may differ with other experts and with public officials. If so, the responses are averaged, but this average then depends on the number of respondents in every country.
• 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 DBR may not understand “work-arounds”, “facilitating fees”, and “learning time” that speed or delay approvals and causes variation costs.

Related studies

Published now for seven years, the DBR has originated a growing body of research on how performance on DBR indicators, and reforms generated by the reports, related to specific development desirable outcomes. As stated by the DBR 2010, about “405 articles have been published in peer-reviewed academic journals and about 1143 working papers are available through Google Scholar”.

The DBR has acknowledged the critic of getting data from one city to give information and ranking valid for all the country. Several regional studies that consider several cities have been created recently, such as the one for the Caribbean, the Arab World and the Balkans. Also, more detailed studies have been created for countries like Brazil, Mexico and Colombia. All studies are available from the DBR website.

DBR sometimes unintentionally has been widely used as a study to measure competitiveness. However, regulation rather than competitiveness is the main objective in the DBR. 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.^[3]

Motivating reforms

Several countries have launched reforms to improve their rankings in the DBR. These efforts are motivated to a great scope by the fact that the World Bank Group publishes the data, and hence huge coverage by the media and the private sector is usually granted every year. Also DBR highlights every year the successful reforms carried out by every country.

The World Bank Group through its different offices has sponsored several reform efforts, providing technical assistance and guidance for countries to implement reform aimed to improve their DB indicators but this appeared to be highly controversial since the World Bank is usually questioned for being judge and partner in the reform efforts related to DB.

References

1. ^ World Bank: "Doing Business 2010", World Bank Group, 2010, U.S.A.
2. ^ Djankov, Simeon, et. al., "The Regulation of Entry", The Quarterly Journal of Economics, Vol.CXVII February 2002, Issue I
3. ^ Snodgrass, Sonald, "Alternative Business Enabling Environment Rankings. A Review", USAID / Business Growth Initiative, USAID

External links

• Official website
• Enterprise Surveys
• Global Entrepreneurship Monitor
• Polity IV Project
• World Economic Forum
• Official iPhone App