Doing Business 2018

Nice discussion on Econtalk about the World Bank Doing Business Report 2018.

From Wikipedia:

The ease of doing business index is an index created by Simeon Djankov at the World Bank Group. The academic research for the report was done jointly with professors Oliver Hart (economist) and Andrei Shleifer. [1] Higher rankings (a low numerical value) 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.[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 3,000 academic papers have used one or more indicators constructed in Doing Business and the related background papers by its authors.”[3]

 

Methodology

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.[4] 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.

The next step of gathering data surveys of over 12,500 expert contributors (lawyers, accountants etc.) 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.[4]

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 construction permits – Procedures, time and cost to build a warehouse
  • Getting electricity – procedures, time and cost required for a business to obtain a permanent electricity connection for a newly constructed warehouse
  • 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, cost and time necessary to export and import
  • Enforcing contracts – Procedures, time and cost to enforce a debt contract
  • Resolving insolvency – The time, cost and recovery rate (%) under bankruptcy proceeding

The Doing Business project also offers information on following datasets:

  • 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
  • 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
  • Good practices – Provide insights into how governments have improved the regulatory environment in the past in the areas measured by Doing Business
  • 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

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.